Nearly two billion people across the globe lack access to formal financial services and approximately 90 percent of these people live in developing countries. They are excluded mainly due to four predominant barriers preventing accessibility:
<ul>
 	<li>Living in rural areas</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Reduced access to digital technology </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Distrust in banks </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Lack of financial and digital literacy.
</li>
</ul>
Over the last four years, Comic Relief and Jersey Overseas Aid have been working together to tackle financial exclusion to make sure no one gets left behind. In 2017, Comic Relief and Jersey Overseas Aid launched a joint program, <a href="https://www.joa.je/branching-out-with-comic-relief/" target="_blank" rel="noopener noreferrer">Branching Out: Financial Inclusion at the Margins</a>, that supports eight organizations through 19 different grants working towards financial inclusion in Zambia, Rwanda, and Sierra Leone. Since the launch of the program, hundreds of savings groups have been created, helping more than 124,000 people gain practical tools to better plan for the future, achieve long-term goals, and prepare for emergencies. Things were looking up.

Then the unexpected occurred in early 2020. COVID-19 presented – and still presents – a real danger to those who were already at the margins of society. 
<blockquote>The challenges created by COVID-19 had a catalytic effect on accelerating FSPs' shift to digital delivery of financial services.</blockquote>
In light of the pandemic, the Branching Out program commissioned a study, <a href="https://res.torontocentre.org/guidedocs/Resilient%20and%20Inclusive%20Financial%20Services%20Delivery%20During%20COVID-19.pdf" target="_blank" rel="noopener noreferrer">Resilient and Inclusive Financial Services Delivery During COVID-19,</a> through the Toronto Centre. The study examines crucial lessons learned in responding to the pandemic in 2020-21. The program interviewed organizations striving to support vulnerable people to gain access to financial services during this trying time to prevent vital progress from being undone.

The study revealed two major findings:
<ul>
 	<li>Digitalization is key for resilience.</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Providing practical tools and guidance to financial services is needed now more than ever.</li>
</ul>
The report also shows that the challenges created by COVID-19 had a catalytic effect on accelerating financial service providers’ (FSPs) shift to digital delivery of financial services. When face-to-face service delivery was significantly reduced due to COVID-19 health protocols, resilient FSPs and countries (those experiencing little to no contraction in business) were those that were able to implement new measures to reduce in-person contact.

The table below illustrates the changes in delivery channels used by FSPs. The y-axis indicates the percentage of FSPs surveyed (the total respondents also included a smaller number of supervisors and associations). Respondents are based in Zambia, Rwanda, and Sierra Leone.
<h4 style="text-align: center;"><span class="NormalTextRun SCXW151714652 BCX0" data-ccp-charstyle="normaltextrun" data-ccp-charstyle-defn="{&quot;ObjectId&quot;:&quot;e1c145c7-e2cb-47f2-9ba6-6c688a134605|117&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:[134233614,&quot;true&quot;,201340122,&quot;1&quot;,469775450,&quot;normaltextrun&quot;,469778129,&quot;normaltextrun&quot;,469778324,&quot;Default Paragraph Font&quot;]}">Percentage of FSP Respondents Using the Delivery Channel Type<span class="EOP SCXW151714652 BCX0" data-ccp-props="{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:2,&quot;335551620&quot;:2,&quot;335559740&quot;:240}"> </h4>
<img class="wp-image-43599 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/12/Screen-Shot-2021-12-07-at-2.04.01-PM.png" alt="" width="965" height="480" />
(Credit: Toronto Centre)
The uptake of digitalization in each of the countries we surveyed was slow before the pandemic. This could be due to the barriers individuals face, such as:  
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Limited access to the technology needed for digital access, especially for women and those in rural areas</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">The level of digital literacy, low before COVID-19 in all three countries, presented a barrier for some groups, especially for women and rural populations</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Issues of trust and concerns around data privacy and transparency were hindrances to quick adoption of digital delivery channels.</li>
</ul>
<blockquote class="pullquote--right">Progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized during the pandemic.</blockquote>
During the pandemic, progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized. For example, FSPs in Zambia saw a rise in usage of mobile banking services from 26 percent pre-pandemic to 36 percent during the pandemic. In addition to this, Zambia FSPs used agents more to navigate the social distancing restrictions and to reach localized communities – as it was deemed more effective than bank branches.

In Rwanda, the uptake of mobile banking before the pandemic was similar to that of Zambia, though Rwandan usage was bolstered by government efforts towards creating a “cashless society,” which further promoted non-face-to-face services. Rwanda FSPs, therefore, focused their efforts on mobile and internet banking.

In Sierra Leone, internet banking rose from 7 percent to 17 percent during the pandemic – the largest increase seen in the report. However, because the country had faced similar challenges during the outbreak of Ebola, FSPs also managed to maintain a high level of face-to-face delivery, due to having the existing infrastructure to adhere to COVID-19 restrictions, such as social distancing and strict health and safety protocols. The experience that health authorities in Sierra Leone gained from the Ebola outbreak helped them prepare for COVID-19 even when little information was available.
<h2>What Does the Digitalization of Financial Services Mean for Those at Risk of Financial Exclusion?</h2>
The report found that in many cases the digitalization of financial services, accompanied by greater digital literacy and accessibility, has been a promising development in inclusive finance. Consumer associations revealed that one of the greatest impacts of this transition has been in access to repayment modalities which would otherwise have been impossible and could affect customer access to future credit as well as FSPs’ willingness to lend to affected groups.
<blockquote class="pullquote--left">There is a real danger that more people could be left behind if these barriers aren’t addressed.</blockquote>
However, while digitalization can be seen as a natural progression that has been bolstered by the conditions created by the pandemic, barriers persist, including a lack of internet access and low financial and digital literacy. There is a real danger that more people could be left behind if these aren’t addressed. 
<h2>Steps Needed for Continued Progress in Financial Inclusion</h2>
Comic Relief and Jersey Overseas Aid identified the following steps FSPs and regulatory bodies should take to continue making progress in financial inclusion:
<ul>
 	<li>Support the shift to increased digitalization to ensure it expands the reach of financial inclusion.  </li>
 	<li>Increase communication at the policy level and share risk assessments with FSPs to allow for proper planning and strategy.
</li>
 	<li>Set supervisory expectations for FSPs, through best practice guidelines, on the enhanced risk management measures that FSPs should take in ramping up non-face-to-face delivery. </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="5" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Enhance information-gathering for effective supervision of these delivery channels as FSPs try out innovative approaches.  </li>
</ul>
Comic Relief and Jersey Overseas Aid’s aim has always been to ensure that those in the most rural communities don’t get left behind when it comes to accessing financial services. As a result of <a href="https://res.torontocentre.org/guidedocs/Resilient%20and%20Inclusive%20Financial%20Services%20Delivery%20During%20COVID-19.pdf" target="_blank" rel="noopener noreferrer">this report</a> and its findings, the Branching Out program will continue its vital work to support more people to understand and take control of their finances, get back on their feet, and plan for their future.

Furthering Digitalization’s Potential for Financial Inclusion: Insights from Sub-Saharan FSPs, Supervisors, and Associations

Financial services play an important contributing role to <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-7660.00125" target="_blank" rel="noopener noreferrer">women's economic empowerment</a>. Women who have access to bank accounts, savings mechanisms, and other financial services may be better able to <a href="https://www.researchgate.net/publication/275140814_The_Role_of_Microcredit_Program_on_Women_Empowerment_Empirical_Evidence_from_Rural_Bangladesh" target="_blank" rel="noopener noreferrer">control their earnings and undertake personal and productive expenditures</a>. They may also be able to make choices about their <a href="https://www.journals.uchicago.edu/doi/full/10.1086/687578" target="_blank" rel="noopener noreferrer">time and their autonomy over decision-making</a>, ranging from employment to marriage to the use of contraception. Financial services may also contribute to <a href="https://cesr.usc.edu/sites/default/files/IDRC_Report_Final.pdf" target="_blank" rel="noopener noreferrer">non-economic benefits </a>such as increased self-efficacy and self-worth, confidence, and increased solidarity within a woman’s network. But many of these potential benefits are only achievable if <a href="https://www.povertyactionlab.org/policy-insight/designing-financial-services-and-social-protection-programs-enhance-womens-economic" target="_blank" rel="noopener noreferrer">women are able to maintain control</a> over resources.

What are the mechanisms to ensure that women retain control over resources? Financial services design and delivery plays a part. But even more important is the need to understand and address the social and gender norms that influence women’s participation in the economy and the financial system.

Social and gender norms are key determinants of behaviors and roles. Social norms are the implicit and informal rules, attitudes, behaviors, and values that the majority accept and follow. <a href="https://www.alignplatform.org/sites/default/files/2021-04/align_-_gender_power_and_progress_0.pdf" target="_blank" rel="noopener noreferrer">Gender norms</a> are a subset of social norms that pertain to how people of a particular gender are expected to behave. Gender norms <a href="https://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.472.6354" target="_blank" rel="noopener noreferrer">can be seen</a> in the division of labor and allocation of resources within and without a household, as well as in the expectations placed on men and women, which foster the development of different abilities, attitudes, and desires. For <a href="https://www.alignplatform.org/resources/intersectionality-gender-norms-conversation-truechilds-riki-wilchins" target="_blank" rel="noopener noreferrer">everyone</a>, norms are “like invisible ‘guard rails’ that shape and narrow people’s thinking, behaviors, and opportunities. [N]orms often show up as a kind of negative power, as absence rather than presence: doors that just didn’t open, choices that couldn’t be made, opportunities that just seemed out of reach." <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X04000750" target="_blank" rel="noopener noreferrer">Norms matter</a> because they determine behaviors and control over household resources, which shape demand for financial services.
<blockquote class="pullquote--right">This paper reviews the emerging evidence on social and gender norms and financial inclusion.</blockquote>
This paper reviews the emerging evidence on social and gender norms and financial inclusion. Norms are increasingly recognized as a key constraint to women’s financial inclusion — one that may help explain the persistent gender gaps in bank account and, in some regions, mobile money ownership, as well as the fact that <a href="http://hdr.undp.org/sites/default/files/hd_perspectives_gsni.pdf" target="_blank" rel="noopener noreferrer">progress toward gender equality is slowing</a> globally. It is time to move away from gender-blind or <a href="https://centerforfinancialinclusion.org/the-case-for-a-gender-intelligent-approach-an-opportunity-for-inclusive-fintechs/">gender-aware approaches</a> to financial services toward a gender-transformative approach that explicitly creates gender-equal financial systems by <a href="https://www.ifpri.org/publication/beyond-access-gender-transformative-financial-inclusion-agriculture-and-entrepreneurship" target="_blank" rel="noopener noreferrer">embedding pathways for engagement</a> on equal terms.

Without gender norm transformation, it is unlikely that women’s financial inclusion will lead to meaningful economic empowerment. However, social and gender norms are complex, hyper-local, and difficult to measure. As such, there is no one “right” way to assess or change norms, though more evidence is needed to identify whether global lessons and approaches can lead to sustainable, systemic change.
<blockquote class="pullquote--right">There is no one “right” way to assess or change norms.</blockquote>
This paper brings together the evidence of what is known on norms and financial inclusion and uses cases to demonstrate aspects of and approaches to addressing discriminatory norms throughout the financial system. It also highlights many remaining areas for further inquiry on norms and financial services that would enable improved women’s economic empowerment.

Normative Constraints to Women’s Financial Inclusion: What We Know and What We Need to Know

This paper examines how COVID-era economic policy measures – specifically those addressing liquidity – are directly affecting low-income segments and the financial institutions that serve them. In particular, the paper reviews the liquidity needs of financial institutions serving low-income customers in light of COVID-19, provides examples of policy measures being taken around the world to address concerns over liquidity, and addresses how these measures are affecting the financial institutions that serve low-income customers in emerging markets, especially MFIs and other related non-bank financial institutions (NBFIs). This is the first in a series of policy papers on COVID-19 economic policy responses and their impact on low-income customers.

Preserving Liquidity: Policymaker Responses to COVID-19 and the Impact on Low-Income Customers

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" />The following is part of an Africa Board Fellowship <a href="/series/abf-spotlight/">blog series</a> spotlighting the experiences of participants and reflections from industry experts.

In the previous blog in this series, we reframed external challenges as a “normal” part of doing business for financial service providers (FSPs) targeting the base of the pyramid. And based on insights from Africa Board Fellows, we looked at <a href="http://cfi-blog.org/2018/08/09/navigating-challenges-is-what-boards-are-all-about-part-1-anticipating-challenges/">specific ways board members can anticipate and even shape the challenging aspects of their operating environment</a>. However, while most boards have more potential for external influence than they often exercise, there are always external factors that cannot be controlled. Boards must also continually focus on reducing the FSP’s vulnerability and enhancing its resilience<img class=" wp-image-25794 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/31479737602_1ed7a2ba32_k.jpg" alt="31479737602_1ed7a2ba32_k" width="638" height="93" />
<h2>Reducing Vulnerability</h2>
Beyond external awareness and efforts to shape the operating environment, boards can direct their institutions to take internal steps to minimize exposure to external shocks and increase the FSP’s ability to withstand changes in the operating environment. These steps aim to secure adequate financial cushions and human resources to cope with shocks.
<ul>
 	<li>Strategic Planning: As part of strategic planning, the board should review external factors, including client demand, current and future market penetration of its own institution and competitors, and market saturation by area. The strategic plan should include multiple scenarios (e.g., conservative, base case, and optimistic) as well as short, medium and long-term targets. The plan should be reviewed and revised on a regular basis.</li>
 	<li>Capital Adequacy: Board members bear ultimate responsibility for ensuring that the institution’s capital and liquidity are adequate to surmount whatever disruptions can reasonably be anticipated, and – just as important – ensuring that management takes quick action to cut costs if capital starts eroding. Improvement in the economic environment is often just around the corner, but it can remain around the corner just long enough for the institution to become insolvent and fail. For regulated institutions, regulators set minimum capital adequacy and liquidity ratios, but this does not absolve directors from the responsibility to determine whether additional capital and liquidity would be prudent. Directors can work with management to evaluate how capital and liquidity will be affected in various scenarios.</li>
 	<li>Asset–Liability Management: Like any financial institution, FSPs are exposed to balance sheet mismatches, such as currency mismatches when borrowing in dollars or euros. While avoiding hard currency loans may not always be feasible, CEOs and board members should scrutinize foreign currency exposure carefully and limit it to levels that the institution can absorb if currency devaluation does occur. To prepare for currency fluctuations, Vision Fund Zambia’s board instituted a policy against foreign currency denominated borrowing, as CEO Nkosilathi Moyo describes in <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">this interview</a>. Passing foreign exchange risk on to clients by denominating loans in foreign currency is usually not an effective risk management technique, as most clients are even less able to absorb such risk than the FSP lender.</li>
 	<li>Staff Training and Incentives: As part of their fundamental responsibility for the viability of their institution, directors must closely scrutinize how management proposes to train and incentivize staff to ensure that they support strong operational procedures that appropriately retain and encourage staff. Staff knowledge and loyalty can be essential in a crisis situation.</li>
</ul>
<h2>Enhancing Resilience</h2>
[caption id="attachment_25799" align="alignright" width="226"]<img class="alignnone size-full wp-image-25799" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/paul-dileo.jpg" alt="Paul DiLeo" width="226" height="250" /> Paul DiLeo[/caption]

Inevitably, with all the best efforts and preparation, some external events cannot be avoided. But this doesn’t mean they cannot be planned for, even if they may take very different forms. Boards can be better prepared to recover from shocks if they take the following steps:
<ul>
 	<li>Board Composition and Training: Board self-evaluations should be performed on at least an annual basis to ensure the right skills are represented and to identify gaps. Any areas of improvement should be addressed by training, bringing in experts, and field visits to other institutions that have successfully dealt with relevant challenges and opportunities. Proactively taking these steps can help directors be more prepared for the unexpected.</li>
 	<li>Executive Committee of the Board: The ability to act quickly can be crucial to responding successfully to external shocks. Many boards have directors in far-flung locations, and it may be hard to assemble a quorum. Even when formal decisions are not required, the CEO and senior management will benefit from the counsel and insights of board members. Many boards designate a small executive committee, usually drawn from in-country directors, authorized to take decisions and provide counsel to management between meetings of the full board.\</li>
 	<li>Disaster Planning and Recovery: Board directors should ensure that contingency plans addressing a variety of common challenges are prepared and kept up to date. These will cover matters ranging from “phone trees” indicating who calls who to confirm staff safety and whereabouts in the event of a natural disaster or security threat, to secure offsite data backup and recovery to succession planning in the event of loss of a key manager. As Resi Janssen of FFSL South Sudan <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/resi_janssen_fssl.pdf">notes</a>, the first priority in a serious crisis is to ensure that staff are safe.</li>
</ul>
FSPs operate in dynamic environments where challenges and opportunities are constantly changing. Board directors with a good understanding of the institution’s strengths and weaknesses and a grasp on the operating environment play a crucial role in helping shape the environment over the medium term, and ensuring that the FSP and its management are resilient and prepared.

CFI is currently recruiting fellows for the next cohort of the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.

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Navigating Challenges Is What Boards Are All About – Part 2: Vulnerability and Resilience

<img class=" wp-image-25789 alignleft" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/30784872334_b499dfc281_m.jpg" alt="30784872334_b499dfc281_m" width="88" height="109" />The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting the perspectives and experiences of CEOs and board members of financial institutions, as well as industry experts, who have participated in CFI’s <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> program.

In recent years, some African countries have experienced slower economic growth and less stability in their currencies. This deterioration in macroeconomic conditions has presented challenges for financial service providers (FSPs) seeking to serve the base of the pyramid and improve financial inclusion. Some ways macroeconomic conditions impact FSPs include:
<ul>
 	<li>Higher operational expenses (e.g., imported IT equipment and software; office leases and technical services invoiced in foreign currency)</li>
 	<li>Increase in non-performing loans as small businesses have had fewer growth opportunities</li>
 	<li>Higher cost of funds (both deposits and debt)</li>
 	<li>Reduced access to debt from international and local providers</li>
 	<li>Decrease in revenue or tighter margins</li>
</ul>
We're talking to <a href="https://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> (ABF) alumni to share their experiences dealing with deteriorating macroeconomic conditions.

ABF alumnus Deji Fisho, Board Member of Fortis Microfinance Bank in Nigeria, provides insights into the implications for FSPs on the 2016 decision by the Central Bank of Nigeria to allow the exchange rate for the Naira to be market driven.

It affects a microfinance bank’s exposure to dollar loans. When the currency devalues, MFIs have to spend three times more Naira to keep money in dollars. But with the oil market crash, there weren’t even enough dollars coming in for repayments, so people have to go outside the bank to the black market to get dollars. In a currency devaluation situation like this, MFIs won’t have money to lend. The bigger banks borrow from the government and the smaller banks borrow from the bigger banks. So there is no trickle down to MFIs if the larger banks don’t have the cash.

Learn more in <a title="Deji_Fisho_Fortis MF Bank" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/deji_fisho_fortis-mf-bank.pdf">Deji's full interview</a>.

ABF Fellow Nkosilathi Moyo, CEO of VisionFund in Zambia, comments on how currency devaluations impact clients:

Some of our clients are traders, so they buy goods from Democratic Republic of Congo, South Africa and Tanzania. Devaluation meant that our clients had limited foreign currency to meet their business needs, resulting in default.

After the fluctuations, we revised our risk appetite statement to ensure that it is aligned with prevailing market conditions. For instance, the board made a decision that we should not contract any foreign currency denominated loans. Additionally, we reviewed our risk concentration to ensure we do not have too much focus on any one region or industry. For example, we are shifting some of our focus away from traders in the mine areas to smallholder farmers.

Read more in <a title="Nkosilathi _Moyo_VisionFund_Final" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/nkosilathi-_moyo_visionfund_final.pdf">Nkosilathi's full interview</a>.

Regulators can sometimes respond to macroeconomic problems by imposing regulations designed to keep risks out of the financial sector. One response is to impose higher minimum capital requirements or higher reserve requirements. These may sometimes be imposed directly after a collapse of a similar type of financial entity due to a sudden bank run. Such restrictions can be debilitating for financial institutions, especially when they are imposed suddenly. Although meant to protect depositors, this type of regulation can push smaller FSPs out of the market.

In 2017, Mozambique recently faced challenges arising from multiple factors: political tensions and violent clashes, a debt scandal that resulted in the suspension of aid from key donors and endemic corruption. This affected macroeconomic variables, with a significant currency devaluation in 2016 and high inflation (15 percent) in 2017. These tough macroeconomic conditions led regulators to impose a higher minimum capital requirement on financial institutions. ABF Fellow Titos Macie, Socremo Board Chair, discusses the impact of that increase on the institution.

The deteriorating macroeconomic fundamentals, along with the non-performance of two major banks (one liquidated and one placed under the central bank administration), caused the central bank to increase minimum capital requirements. Initially, the central bank had indicated that the new capitalization requirements would be 500 million meticais, an increase from MZM 70 million, so the board made plans to meet that requirement within three years by not paying out shareholder dividends [and using] share premium and retained earnings to capitalize the bank. When the official decree was actually issued by the central bank, the capitalization requirement was much higher: MZM 1.7 billion (US $26 million). Facing this requirement, the board had little room for maneuver. It took a decision to downgrade Socremo from a full commercial banking license to a micro bank license. Socremo can still do almost all financial services, except for forex business.

<a title="Titos_Macie_Socremo" href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/titos_macie_socremo.pdf">Titos' full interview</a> includes a discussion of the impact of currency devaluation on its clients. Accion discusses its recent investment in Socremo <a href="http://blogs.accion.org/features/plan-bring-small-businesses-in-mozambique-support/">here</a>.

Titos sums up how many FSPs operating in challenging macroeconomic and regulatory environments feel: We are surviving and looking at a better future.

CFI is currently recruiting fellows for the next cohort of the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship program</a>. If you or someone you know is a board member or executive at an Africa-based MFI or financial service provider, we recommend considering this opportunity.

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Dialogue With Africa Board Fellows: Navigating Challenging Macroeconomic Environments

The following is part of a <a href="https://cfi-blog.org/tag/abf-blog-series/">blog series</a> spotlighting views from participants in the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a> (ABF).

Two experiences with interest rate caps – in Kenya and Zambia – demonstrate the power of political forces to shape financial inclusion policies and may hold lessons for MSME lenders in other countries.

In a recent unpublished study, the <a href="https://responsiblefinancialinclusion.org/">Partnership for Responsible Financial Inclusion</a> (formerly the Microfinance CEO Working Group) examined commonalities in the origins of interest rate caps in these two countries. In both cases, signs were clear that the general public was upset about the current state of loans and interest rates. Approaching elections increased the will among political leaders to make regulatory changes that would appeal to the public.

In Zambia, a populist president, Michael Sata, was the surprise victor in 2011’s elections. In his first days in office, Sata announced his priority of cutting the cost of credit for Zambians, a move in opposition to the country’s dominant banks. His remarks sent the domestic currency into a spiral. Inflation soared, and interest rates rose. These events helped create a sense of urgency for both consumers and legislators, propelling the caps through the legislative process. In 2012, Sata led the government in successfully passing his proposed law, which capped commercial banks’ loan interest rates at 18.25 percent.

In 2013, the interest rate caps were also imposed on microfinance lending. The maximum rate was set at 42 percent for a select group of microfinance institutions and 30 percent for other non-bank financial institutions. Following Sata’s death in 2014 and the election of his replacement, the interest rate caps were removed in 2015. The government’s approach in this area now focuses on pricing transparency.

Zambia’s interest rate caps were not particularly effective. To compensate for lower interest income, the banks began to charge more fees, keeping effective prices more or less the same for consumers. The caps did not create an effective solution, and ultimately banks, microfinance institutions and regulators agreed on ending the caps. Instead, strong regulations on pricing transparency were put into law.

A similar story has been unfolding in Kenya, which introduced an interest rate cap of 4 percent above the Central Bank of Kenya Policy Rate for regulated financial institutions in September 2016. The measure was viewed as a populist move. However, in the short time since the law’s enactment, signs <a href="http://africanbusinessmagazine.com/african-banker/kenya-interest-rate-cap-coming-off/">suggest</a> it is doing more harm than good to the overall economy, including the exclusion of “higher risk” borrowers like MSMEs, decreased levels of lending, and lower profits and stock values among banks. It seems the government is now looking to remove the caps given the impacts on the economy and financial services sector.

However, there have been some positive outcomes for the Kenyan financial inclusion industry – such as more innovations, especially in digital lending, because the banks are restricted in lending, creating an opening for non-bank lenders. Some Kenyan banks have also started to buy MFIs in order to lend through them in smaller amounts. The caps have caused banks to diversify their product offerings more – to insurance and leasing.

We interviewed two alumni of the CFI’s Africa Board Fellowship (ABF) to share their experiences about the politics and practice of interest rate caps.

<img class="wp-image-25583 alignright" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/jacqueline_musiitwa.png" alt="" width="387" height="500" />Jacqueline Musiitwa is the Executive Director of FSD Uganda and a board member of Microcred Zimbabwe and the Central Bank of the Republic of Zambia. 

ABF: Can you share your perspective on the decision to implement, and subsequently remove, the interest rate caps in Zambia?

Jacqueline Musiitwa: "The Zambian experience seems to be similar to Kenya’s case – a populist approach with the hopes of encouraging lending to the masses. Then, quickly learning that the opposite actually happens: interest rate caps cause banks to stop lending, and the people don’t benefit. The first thing the current governor of the Central Bank did in office was reverse the caps. Increasing lending was a top priority. The Central Bank also had conversations with banks at that time about keeping interest rates low. The Central Bank learned that rate cap regulation hasn’t worked well historically, so they wanted to figure out how to work together with banks to find a solution.

Stepping back, the question is: how do banks charge interest in a way that makes sense for the population being served? Some people are unbanked for fear of charges. The Central Bank in Zambia is looking at how to get banks outside their comfort zone to serve new clients. How can they create a system of mutual trust?

Ultimately, you take a few steps forward and then a few steps back. Public trust in banks has everything to do with the safety of savings. In Zambia, the numbers were going well in terms of signing clients up at non-banking financial institutions and then in December 2016, a bank closed for three months during which time shareholders injected money into it. Clients reacted with: ‘You see, this is why we are going to put our money under the pillow’. The bank is now back but now there is still a fear of depositing in banks, so it is hard to get people to increase savings.

Regulators wrestle with how to communicate market stability when there is even just one weak link. You saw it with banks in Kenya. Dubai, Imperial, and Chase banks all went down in Kenya, and the reaction was the same. People either don’t trust banks or move to the biggest banks. Zambia is pushing through a law for a deposit protection scheme."

The full interview with Musiitwa can be read <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/jacqueline_musiitwa_interview.pdf">here</a>.

<img class="alignleft wp-image-25584" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/ivan-mbowa.png" alt="" width="317" height="476" />ABF Alumni Ivan Mbowa, CEO of Umati Capital, offers a perspective on interest rate caps from his experience in Kenya.

ABF: Kenya’s government introduced an interest rate cap for banks, but not for non-bank financial institutions like Umati. How has Umati been affected?

Ivan Mbowa: "At Umati we’re seeing a lot more interest in our services. About half of our clients are new to formal finance. They could never get money from a bank in the first place. The other half are coming to us for additional financing, because they don’t have the collateral to get more from banks.

The funny thing is that the clients don’t always understand the nuances between a non-bank financial institution and a bank, so when they see our rates, the first impression is, ‘You guys are just flouting the law—it’s supposed to be capped.’ We have to explain that the cap doesn’t apply to Umati. A good outcome has been that there seems to be a lot more awareness and questioning from clients on, 'What is the cost of your product?'

It’s also been easier to make the argument that even if you can access bank credit, it’s good to be multibanked, so that the next time there’s a freeze or a crunch, you’re not fully exposed. Savvy clients understand that working with Umati can be a hedging mechanism."

The full interview with Mbowa can be read <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/ivan_mbowa_interview.pdf">here</a>.

In one more example, the West Africa Economic and Monetary Union (WAEMU) implemented more stringent caps in 2015, reducing the cap from 27 percent to 24 percent for MFIs and from 18 percent to 15 percent for banks. In the time before the new cap was implemented, the trend in bank interest rates had been downward, as a result of competition. According to reports from ABF Fellows on the ground, the lower caps did not have a very big impact on banks, especially considering all the fees they were generating. However, caps have inhibited lending to micro and small enterprises because, for the most part, banks were already limited in their lending to this customer segment. Private investors who are interested in serving micro and small enterprises have avoided the region, given that the caps lengthen the time to break even for a fledgling greenfield financial institution. Several studies indicated that many MFIs have been unable to achieve adequate scale and efficiency in their respective business environments to be profitable and sustainable.

Given the diverse outcomes interest rate caps can have, we’d love to hear more from our readers about their experiences with interest rate caps.

Have you read?

<a href="https://cfi-blog.org/2017/02/01/are-banks-the-future-of-banking-africa-board-fellows-deliberate/">Are Banks the Future of Banking? Africa Board Fellows Deliberate</a>

<a href="https://cfi-blog.org/2017/10/20/the-board-should-not-be-the-last-to-know-why-mfis-need-independent-internal-auditors/">The Board Should Not Be the Last to Know: Why MFIs Need Independent Internal Auditors</a>

<a href="https://cfi-blog.org/2017/10/04/how-can-microfinance-institutions-in-the-middle-east-and-north-africa-manage-risk-and-meet-client-demand-governance-is-key/">How Can Microfinance Institutions in the Middle East and North Africa Manage Risk and Meet Client Demand? Governance Is Key!</a>

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&nbsp;

The Politics (and Varied Experiences) of Interest Rate Caps

Editor's Note: Eric Noggle worked at Microfinance Opportunities when this research was conducted and published.

In 2014, <a href="http://fsdzambia.org/">Financial Sector Deepening Zambia</a> and <a href="https://www.microfinanceopportunities.org/">Microfinance Opportunities</a> (MFO) began the Zambia Financial Diaries—a 52-week study of the financial lives of 352 low-income Zambians. The study included 92 smallholder farmers—individuals who own small plots of land on which they grew crops or tended livestock for sale and/or subsistence.

The Zambian smallholder farmers represent only a tiny fraction of the estimated 500 million smallholder households worldwide. Smallholder farmers are a large livelihood group and addressing their diverse needs—from crop diversification to market integration—is a strategic priority for the World Bank Group, country-level governments, and non-government organizations.

Understanding smallholder farmers’ income patterns is critical for designing financial services that meet their financial needs. The common perception of farmers’ income patterns is that they are lumpy and linked to agricultural cycles, but the income patterns identified in MFO’s Zambia Financial Diaries challenge this perception.
<h2>Income Patterns</h2>
<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png"><img class="alignright wp-image-20735" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-12.png" alt="" width="350" height="88" /></a>The farmers in MFO’s study had lower and more variable incomes than respondents who earned the majority of their income from informal, off-farm sources (“informal workers”). The farmers had 4.3 income sources on average, often relying on casual labor or running informal shops to supplement their agricultural activities, while informal workers had 3.3 sources. Farmers’ average weekly earnings were low—only about $19 per week on average compared to $50 for informal workers (based on June 2015 exchange rates). The farmers also experienced more week-to-week income variation, as measured by the coefficient of variation (COV), than other respondents who work in the informal economy.

However, these data mask the diversity of smallholder farmers’ income patterns. The study found farmers who earned large sums frequently, while others had large and inconsistent windfalls. Lower-income farmers also had diverse patterns, with some earning small sums on a frequent basis while others went weeks between earning income.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png"><img class="aligncenter wp-image-20737" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-23.png" alt="" width="615" height="232" /></a>

MFO developed a simple market segmentation framework to understand the role of income patterns in financial service design better. The framework comprises two dimensions: average weekly income and week-to-week income variation as measured by the COV. We divided respondents into high- or low-income groups at the median of average weekly income and high- or low-variation groups at the median of the COV.

&nbsp;
<h2><a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png"><img class="aligncenter wp-image-20738" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-32.png" alt="" width="615" height="299" /></a></h2>
<h2>Implications of Segmenting by Income Behavior</h2>
The segmentation framework demonstrates the diversity of smallholder farmers’ income patterns and their similarity to the income patterns of informal workers. This finding should encourage stakeholders to prioritize collecting information about consumers’ income patterns when designing financial services for the low-income market segment. The financial needs of a smallholder farmer with high, steady income are more similar to those of a micro-entrepreneur with the same income pattern than a smallholder farmer who irregularly earns small sums. Recognizing these inter-livelihood similarities can help stakeholders mitigate inefficiencies in the design, marketing, and delivery of financial services.

&nbsp;

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png"><img class="aligncenter wp-image-20739" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/figure-41.png" alt="" width="615" height="232" /></a>

&nbsp;

Stakeholders focused specifically on smallholder farmers should consider the needs and opportunities that these income patterns suggest. For instance, a farmer with high income and high variation may benefit from interventions that allow the farmer to diversify on- and off-farm income sources. This diversification could lead to more consistent annual income. A farmer with high income and low variation may be best suited for interventions that support the expansion of farming activities through asset financing or linkages with local markets. Farmers with low-income and high variation may struggle to piece together the income necessary to purchase inputs during the planting season; thus, a layaway product might be beneficial for them. Cash transfers from government agencies or non-governmental organizations would help farmers with low-income and low variation pay basic on- and off-farm expenses that their meager earnings cannot cover.

Income patterns alone should not inform the design of financial services for smallholder farmers, but they are a critical component in the process. MFO’s hope is that this study and other research can help improve the efficacy of interventions meant to help this diverse group.

For more information on the research methodology and additional findings, please read the <a href="https://www.microfinanceopportunities.org/?p=2824">Zambia Financial Diaries Interim Report</a>.

Have you read?

<a href="http://cfi-blog.org/2014/09/10/pay-for-performance-operationalizing-the-embedded-education-model/">Pay-For-Performance: Operationalizing the Embedded Education Model</a>

<a href="http://cfi-blog.org/2014/06/11/climate-change-adaptation-for-smallholder-farmers/">Climate Change Adaptation for Smallholder Farmers</a>

<a href="http://cfi-blog.org/2013/11/01/what-is-financial-capability/">What Is "Financial Capability?"</a>

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&nbsp;

Using Income Patterns to Segment Livelihood Groups: The Case of Smallholder Farmers

<a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/"><img class="alignright wp-image-20072" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/2652377697_7cd2f08d4e_o.jpg" alt="2652377697_7cd2f08d4e_o" width="349" height="224" /></a>Aging is an issue that we all hope to face personally, if we haven’t already. As we prepare to participate in <a href="http://www.e-mfp.eu/microfinance-week">European Microfinance Week</a>, we are more convinced than ever that this is a critical topic for the financial inclusion community to address. (If you are planning to be at European Microfinance Week too, make sure to <a href="https://event.neimenster.lu/ehome/emw2015/308192/?&amp;">check out our panel</a> on the Sustainable Development Goals and financial inclusion!) In Europe, the aging of the population is well acknowledged. With average life expectancy in Europe among the highest in the world, at 77 years, the proportion of the population reaching older age is naturally growing. About 25 percent of Europe’s population is now over the age of 60, and that percentage is set to rise. The aging of the population is well understood in Europe, but what is less recognized is that the middle and lower-middle income countries of the world – the countries that encompass most of the world’s population – are already beginning to experience the same older age population boom. In most middle income countries, from Mexico to China, over-60s are the fastest growing cohort of the population. Aging is a product of successful development. Increased life expectancy, better family planning mechanisms, and higher quality of life all contribute to growth in the proportion of the population that is older.

Aging is a reality, but can it also represent an opportunity for financial institutions? The smart money is on providers who recognize that the answer is yes, and work to figure out how to respond.

We’ve created a list of activities, some practical and some research-oriented, we think would be valuable to close the gaps in financial inclusion for older people and for younger people who want to prepare for their older age. And, frankly, we would love for you to steal these ideas!

Develop a toolkit for becoming an age-friendly institution. We hear of a few financial institutions—from MFIs to commercial banks—that are using age as a lens through which to segment product offerings. From long-term savings products for people in their primary working years to credit designed for older people, being age-friendly across the life course allows a focus on life transitions and the diverse financial needs that accompany them. Case studies and toolkits would help financial institutions follow proven approaches. As part of becoming an age-friendly institution, there are a few starting points that would make a big impact:
Age-proof channels and technology. Financial institutions recognize that new technology, new channels, and new products must be built with the user experience in mind. There are existing vehicles for testing channels and technology to ensure that they work for older people. As part of vetting channels and technology, financial institutions can leverage older persons’ associations, assuring the technology’s validity for later life.
Ensure that staff members are not discriminating based on age. Financial institutions and support organizations can test the customer experience through mystery shopping in order to better understand how people of different ages are treated when they walk into a branch. An exercise like this could inform market-specific training modules to dispel myths about aging for staff of financial institutions.
Use existing data to create better products. Financial institutions have a wealth of data on clients that goes unused, and age is one data point that is collected because of the way that AML/CFT laws are translated into institutional policy. Financial institutions can use the data they have on clients to better understand how age influences client behavior. From this data, financial institutions have the opportunity to create better products to serve people across their life cycle, and especially into their older age.
Enhance financial security in older age by leveraging G2P and P2G early on. The shift toward electronic government-to-person and person-to-government payments presents an opportunity for creating “on-ramps” to inclusion. Leveraging these products could include automatically diverting funds sent through electronic channels to help people save funds for older age (which is already happening in many parts of the world) or using electronic G2P payments that go to older people as collateral for loans (older people are often seen as higher risk). Financial institutions which provide the accounts through which electronic payments are channeled have the positioning to capitalize on this opportunity.

Raise or eliminate age caps on credit and insurance. Over half of the institutions we <a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">surveyed earlier this year</a> reported that they impose upper age restrictions on their products. Many age caps at microfinance institutions are based on outdated actuarial tables, and are ripe for being challenged or creatively eliminated. Many people who are older may be willing to pay more for credit. And financial institutions could find highly receptive clients if they responsibly raise age caps on credit products. A dedicated loan guarantee fund could help mitigate perceived risk during a pilot phase, accompanied with careful performance monitoring to provide more data about actual risks of lending to older adults.

Enable people to save for their older age. Pension systems were designed for a largely formal labor force, and the current reality of the size of informal markets does not match the intention of pensions systems. More progressive governments have begun to reform their pension systems to account for the more informal labor force, by creating alternative channels for contributions at places like corner stores and through mobile phones. Financial institutions can also play a role, either serving as channels to collect funds for the pension system or by setting up independent long-term savings programs that promise a competitive interest rate.

We are confident that there are a hundred more ideas that are just as good (or better). More importantly, though, we look forward to seeing a world in which age is not a barrier to people having access to a full range of quality financial services.

If you end up stealing one of these ideas, or if you’re already doing something to advance industry thinking on aging, let us know—we would love to champion your work.

Image credit: <a href="https://www.flickr.com/photos/worldbank/2652377697/in/album-72157601463875207/">World Bank</a>

Have you read?

<a href="http://cfi-blog.org/2015/02/20/moving-to-action-on-aging-and-financial-inclusion/">Moving to Action on Aging and Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/02/10/aging-and-financial-inclusion-an-opportunity/" target="_blank" rel="noopener">Aging and Financial Inclusion: An Opportunity</a>

<a href="http://cfi-blog.org/2015/09/10/aging-and-financial-inclusion-a-client-protection-issue/">Aging and Financial Inclusion: A Client Protection Issue?</a>

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&nbsp;

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&nbsp;

Aging and Financial Inclusion: Steal These Ideas!

<a href="http://www.fi2020week.org/"><img class="alignright wp-image-19409" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/fi2020-week-logo.png" alt="" width="350" height="141" /></a>&gt; Posted by Center Staff

FI2020 Week is a global conversation on the key actions needed to advance financial inclusion, grounded in the findings of the recently launched FI2020 Progress Report. From November 2-6, 2015, stakeholders around the world are participating in more than 30 events and sharing their voices over social media, with #FI2020.

<a href="http://www.fi2020week.org/">FI2020 Week</a> is nearing its end! Today is the final day. We’re sad too, but there are still lots of opportunities to get involved, and it’s been a lively four days. Also, we'll continue to report out on all that happened, so there's more to come! Along with the in-person events, there are a handful of <a href="http://www.fi2020week.org/get-involved/">webinars</a> today, you can submit a <a href="http://www.fi2020week.org/calls-to-action/">call to action</a>, or take part in the far-reaching social media conversations, which we’re capturing on the FI2020 Week site, <a href="http://www.fi2020week.org/live-updates/">here</a>.

Since our <a href="http://cfi-blog.org/2015/11/04/fi2020-week-recap-1/">last recap</a> there have been dozens of events around the world bringing together stakeholders passionate about advancing financial inclusion. Here is a quick look at a few of those events:

[caption id="attachment_19973" align="alignright" width="300"]<img class="wp-image-19973" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/9ada54ca5b5f8b0db21c99a5d66354501939e4302944244662pimgpsh_fullsize_distr.jpg" alt="Nkosilathi Moyo, CEO, VisionFund Zambia" width="300" height="200" /> Nkosilathi Moyo, CEO, VisionFund Zambia[/caption]

In Lusaka, Zambia, representatives from a variety of organizations, including the Bank of Zambia, came together at an event hosted by VisionFund Zambia to discuss promoting financial inclusion by leveraging savings groups and microfinance institutions. Participating stakeholders identified three major gaps for achieving financial inclusion in the country: lack of a conducive regulatory framework; poor infrastructure; and information asymmetry between different players in the market. Moving forward, the participants agreed on the importance of convening and decided that an FI2020 event should be held each year until 2020. Additionally, the participants agreed, there needs to be a stronger focus on establishing strategic partnerships between mobile network operators, financial service providers, NGOs, and government to develop cost-effective delivery channels that reach people in rural areas.

Forty-five leaders in financial capability, financial literacy, and financial health came together at a roundtable in Washington, D.C. to review a draft paper on innovations in financial capability written by the Center for Financial Inclusion in partnership with the JPMorgan Chase Foundation. The event was hosted by the Institute of International Finance. The draft paper focuses on seven principles to re-orient financial capability building toward customer needs and behaviors, with a call to action to all stakeholders—providers, governments, social sector organizations, financial capability providers, and donors—to make this shift.

AVAL held a webinar to share the results of their 2015 study aimed at understanding the financial capability of persons with physical disabilities in Ecuador. The study found that among those with physical disabilities in the country: 37 percent are not included in the financial system; 64 percent reported they had never received any training on how to manage their personal finances; 79 percent do not have a credit card; and 60 percent have not taken out credit in the last five years. AVAL concluded that in the future there must be a greater focus on building financial capability among disabled Ecuadorians, so that they can be empowered to use services and have greater access to the financial system.

GSMA conducted two webinars, one focused on the <a href="http://www.gsma.com/mobilefordevelopment/programmes/mobile-money/code-of-conduct">GSMA Code of Conduct for Mobile Money Providers</a>, and another on the impact of mobile money on financial inclusion and other policy objectives. During the latter, GSMA reviewed evidence of the positive macroeconomic impacts of mobile money, while also highlighting the risks of provider-to-client interactions.

In another webinar, Innovations for Poverty Action IPA explored recent innovations in financial capability. Three different researchers presented their work from Afghanistan, Chile, and India, demonstrating that providers must integrate evidence-based solutions in promoting positive financial behaviors.

On social media, people and organizations shared their FI2020 Week activities, thoughts related to financial inclusion, and calls to action – answering FI2020 Week’s guiding question What is an important action needed in your country or industry segment to advance financial inclusion? Join the discussion and share your own call to action (with a photo if you can!) via any social network using #FI2020, or <a href="mailto:amcgrath@accion.org">send us</a> an email.

<a href="http://www.fi2020week.org/live-updates/"><img class="aligncenter wp-image-19972" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/storify-11-5-2015.png" alt="" width="614" height="362" /></a>

The growing list of calls to action can be found <a href="http://www.fi2020week.org/calls-to-action/">here</a>. Here is a handful of entries:

<img class="aligncenter wp-image-19976" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/11-6-call-3.jpg" alt="" width="616" height="228" />

<img class="aligncenter wp-image-19977" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/11-6-call-4.jpg" alt="" width="616" height="228" />

<img class="aligncenter wp-image-19978" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/11-6-call-5.jpg" alt="" width="616" height="228" />

<img class="aligncenter wp-image-19979" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/11-6-call-1.jpg" alt="" width="616" height="228" />

<img class="aligncenter wp-image-19980" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/11-6-call-2.jpg" alt="" width="616" height="228" />

Here are the events and webinars of today:
<ul>
 	<li>Credit Access for Thin-File Customers in the U.K.
<ul>
 	<li>Insight Report</li>
 	<li>London, U.K.</li>
</ul>
</li>
 	<li>Voice of the Client
<ul>
 	<li>MIX</li>
 	<li>Webinar: 9am – 10am ET</li>
</ul>
</li>
 	<li>Demand-Side Consumer Insight
<ul>
 	<li>LeapFrog Investments</li>
 	<li>Webinar: 9am – 10am ET</li>
</ul>
</li>
 	<li>Savings Groups in Latin America: What We Have Learned from Impact Evaluation and Linkages to Financial Intermediaries
<ul>
 	<li>Multilateral Investment Fund</li>
 	<li>Webinar: 2pm – 3pm ET</li>
</ul>
</li>
</ul>
For more on FI2020 Week and ways to get involved, including accessing webinars: <a href="http://www.fi2020week.org/">http://www.fi2020week.org/</a>

Have you read?

<a href="http://cfi-blog.org/2015/11/02/fi2020-week-is-underway-join-in/">FI2020 Week Is Underway! Join in</a>

<a href="http://cfi-blog.org/2015/11/03/tackling-five-challenges-to-accelerate-financial-inclusion/">Tackling Five Challenges to Accelerate Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/11/04/fi2020-week-recap-1/">FI2020 Week Recap #1</a>

FI2020 Week Recap #2

The government of China is launching a mandatory credit scoring system in 2020 and since the publishing of a <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">piece on the system</a> by the American Civil Liberties Union (ACLU) last week, it's become a topic of passionate discussion. It remains to be seen how the system will work.  

Below are the opening excerpts from the ACLU post and from a <a href="https://www.techinasia.com/china-citizen-scores-credit-system-orwellian/">Tech in Asia post</a>, which weighs in on the ACLU's points and offers additional food for thought.

"China’s Nightmarish Citizen Scores Are a Warning For Americans"

&gt; By Jay Stanley, Senior Policy Analyst, ACLU Speech, Privacy &amp; Technology Project

China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator <a href="https://twitter.com/interfluidity/status/650803807262130177">put it</a>, “authoritarianism, gamified.” Read <a href="https://www.privateinternetaccess.com/blog/2015/10/in-china-your-credit-score-is-now-affected-by-your-political-opinions-and-your-friends-political-opinions/">this piece</a> for the full flavor—it will make your head spin. If that and the <a href="http://www.chinadailyasia.com/business/2015-06/09/content_15274221.html">little</a> <a href="http://www.fastcoexist.com/3050606/china-is-building-the-mother-of-all-reputation-systems-to-monitor-citizen-behavior">other</a> <a href="http://www.volkskrant.nl/buitenland/china-rates-its-own-citizens-including-online-behaviour~a3979668/">reporting</a> I’ve seen is accurate, the basics are this:

<ul>
 	<li>Everybody is measured by a score between 350 and 950, which is linked to their national identity card. While currently supposedly voluntary, the government has announced that it will be mandatory by 2020.</li>
 	<li>The system is run by two companies, Alibaba and Tencent, which run all the social networks in China and therefore have access to a vast amount of data about people’s social ties and activities and what they say.</li>
 	<li>In addition to measuring your ability to pay, as in the United States, the scores serve as a measure of political compliance. Among the things that will hurt a citizen’s score are posting political opinions without prior permission, or posting information that the regime does not like, such as about the Tienanmen Square massacre that the government carried out to hold onto power, or the Shanghai stock market collapse.</li>
 	<li>It will hurt your score not only if you do these things, but if any of your friends do them. Imagine the social pressure against disobedience or dissent that this will create.</li>
 	<li>Anybody can check anyone else’s score online. Among other things, this lets people find out which of their friends may be hurting their scores.</li>
 	<li>Also used to calculate scores is information about hobbies, lifestyle, and shopping. Buying certain goods will improve your score, while others (such as video games) will lower it.</li>
 	<li>Those with higher scores are rewarded with concrete benefits. Those who reach 700, for example, get easy access to a Singapore travel permit, while those who hit 750 get an even more valued visa.</li>
 	<li>Sadly, many Chinese appear to be embracing the score as a measure of social worth, with almost 100,000 people bragging about their scores on the Chinese equivalent of Twitter.</li>
</ul>
A few years ago I wrote a <a href="https://www.aclu.org/blog/would-it-be-easier-fight-surveillance-if-soviets-were-still-around">piece</a> about how the fall of the Soviet Union, for all its benefits, has made it harder to defend privacy in the United States. During the Cold War, I argued, we defined ourselves in opposition to an enemy that exemplified and embodied in very real form the nightmarish potential of widespread surveillance and control. This made it easy to point to surveillance and shout, “un-American!”

To read the rest of this post, <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">click here</a>.

"China’s ‘citizen scores’ credit system isn’t as Orwellian as the ACLU thinks…yet"

&gt; By C. Custer

Recently, you may have come across <a href="https://www.aclu.org/blog/free-future/chinas-nightmarish-citizen-scores-are-warning-americans">this ACLU piece</a> – or any of the dozens of sites reblogging it – about China’s new citizen score system. Mandatory credit scores for everyone that take into account everything from your video game purchases (that’ll drop your score) to your friends’ political activities? Rewards like travel visas for those with good scores? It sounds like a nightmare.

Thankfully, it’s not quite as bad as all that. The ACLU seems to have been confused about a few things, but here’s the key one: Alibaba’s Sesame Credit scoring system, Tencent’s credit scoring system, and the mandatory government one (which isn’t mandatory until 2020) are not the same things. They are three different things that many articles in the Western press are treating as if they were the same.

Alibaba and Tencent’s credit systems: two different non-government products

Sesame Credit does offer some of the features outlined in the ACLU article. It doesn’t hand out Singapore visas, obviously – I’m not sure how that would even be possible – but it was offering promotions for people with high credit scores, including access to a high-speed VIP check-in at Beijing’s Capital International Airport. China’s government has not endorsed this, though. In fact, <a href="http://english.caixin.com/2015-09-28/100859064.html">according to Caixin</a>, China’s central bank is annoyed by the promotional tactics and has reportedly ordered Sesame Credit to stop offering the airport promotional benefit.

The online score-sharing and bragging alluded to by the ACLU also seems to be coming primarily from Sesame Credit. Some critics have accused the scoring system of essentially being a marketing gimmick designed to promote use of Alibaba’s payment service Alipay (since an increased number of transactions will raise your score).

Many of the other details from the ACLU’s article seem to be based on Tencent’s credit score system, which does <a href="http://www.chinadaily.com.cn/business/tech/2015-08/08/content_21535587.htm">mine data from users’ social networks</a> in order to determine their credit. I haven’t been able to find any direct statement that Tencent factors in users’ political post history – or that of their friends – in determining a credit score.

The difference between the two systems makes sense when you think about the companies’ backgrounds. Ecommerce-focused Alibaba’s credit system is based heavily in users’ purchase and payment history. Social giant Tencent’s credit system is based on users’ social networks. Each company is leveraging the data to which it has access. China doesn’t have a national, comprehensive, and widely-used credit system like those in the West, so private lenders like Alibaba and Tencent have created these systems to better inform their lending decisions.

To read the rest of this post, <a href="https://www.techinasia.com/china-citizen-scores-credit-system-orwellian/">click here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/10/13/the-data-story-in-the-fi2020-progress-report-on-credit-reporting/">The Data Story in the FI2020 Progress Report on Credit Reporting</a>

<a href="http://cfi-blog.org/2015/04/03/new-research-highlights-increasing-use-of-alternative-data-in-credit-reporting/" target="_blank" rel="noopener">New Research Highlights Increasing Use of Alternative Data in Credit Reporting</a>

<a href="http://cfi-blog.org/2015/07/16/more-credit-information-sharing-in-emerging-markets-a-call-to-action/">More Credit Information Sharing in Emerging Markets: A Call to Action!</a>

&nbsp;

Mixing Credit Scoring and Political Control in China. How Bad Is It?

Kathleen Yaworsky

Vikas Raj

Radhika Shroff

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When a family member falls ill, especially a breadwinner, the unexpected costs can tip the family finances from coping to crisis. Insurance can help families manage and recover from shocks — a key indicator of <a href="https://www.centerforfinancialinclusion.org/beyond-financial-inclusion-financial-health-as-a-global-framework">financial health</a>. However, according to the <a href="https://www.fsdzambia.org/publication/finscope-2015/">2015 Finscope</a>, only 2.8 percent of adults in Zambia are insured.

To combat this problem, we’re supporting a Zambian insurtech startup to develop and pilot a new digitally delivered microinsurance product. This work is part of a multi-year project focused on <a href="https://www.opml.co.uk/projects/deepening-financial-inclusion-in-sub-saharan-africa">Data Management and Analytical Capability</a> (DMAC). One of the primary goals of the DMAC project is to develop financial service providers’ capacity to leverage data strategically so they can develop innovative and inclusive products that respond to the needs of unserved and underserved adults. One such product is a mobile-based hospital cash plan in Zambia.

When this product launches, mobile money subscribers will be able to pick a plan and pay the premiums straight from their mobile money account. If they or a family member falls ill and is admitted to the hospital, they can initiate a claim. They’ll receive a mobile money payout directly to their wallet for each day spent in the hospital. This fast, flexible cash benefit can be used to pay for whatever the family needs to make ends meet. It also saves the family from falling prey to exorbitant rates for small short-term loans from moneylenders or others.

To develop this product, the insurtech startup partnered with a national Mobile Network Operator (MNO) as part of their data strategy to use alternative data — such as mobile KYC and mobile money transaction data — for customer acquisition and underwriting. Following a <a href="https://www.accion.org/are-you-unleashing-the-full-potential-of-your-data">data-driven product development methodology</a>, we helped the insurtech map out the data inflows and outflows that the new hospital cash plan will generate. This exercise informed the operational processes and technical requirements needed to support product delivery. For example, the insurtech pinpointed the minimum set of data fields required in the mobile phone menu that the MNO database would need sent to their backend system through their Application Programming Interface (API) for underwriting. They also identified the critical success metrics to measure and track customer usage and satisfaction with the product experience through <a href="https://www.accion.org/preparing-financial-service-providers-for-digital-transformation-2">customized analytics dashboards</a>. This evaluation process will enable a data-driven feedback loop for continuous product improvements.

This experience has underscored that an organization’s ability to <a href="https://www.accion.org/implementing-big-data-10-tips-fsps">strategically leverage big data</a> and build data-driven products depends on identifying and implementing the appropriate mix of staff skills, tech, and operational systems. Strategic partnerships make it possible to meet these business objectives. In Zambia, for example, the insurtech would not be able to digitally acquire and underwrite new customers without the backend insurance administration and reporting systems they’ve developed, an in-house data analyst supported by a local firm specializing in data collection and management, and a strong partnership with the MNO.

Today, there are very few microinsurance plans available to low-income segments in Zambia.  As we prepare for the pilot launch of this new product, we’re hopeful that it can help make insurance more inclusive. Once the tool is live, the dashboards built will be used to track customer usage and experience and enable refinements. This data-driven product has the potential to insure people in Zambia who’ve never had quality insurance, helping them find new resilience in the face of a health crisis. As the <a href="https://www.economist.com/international/2019/08/22/the-poor-who-most-need-insurance-are-least-likely-to-have-it">Economist</a> recently reported, the poor, who most need insurance, are least likely to have it. But mobile phones and innovative fintech, like the projects we’re working on with DMAC, can make a difference.

___________________________________

Data Management and Analytics Capabilities (DMAC) is a two-year program that uses data-driven evidence to help Financial Service Providers (FSPs) in sub-Saharan Africa to designing inclusive and affordable financial products and services that respond to the needs of unserved and underserved adults, with a particular focus on women and youth. 

Initiated by <a href="https://www.fsdafrica.org/">Financial Sector Deepening Africa</a> (FSD Africa) and <a href="https://www.idrc.ca/">International Development Research Centre</a> (IDRC) in partnership with <a href="http://www.fsdt.or.tz/">FSDT</a> and <a href="https://www.fsdzambia.org/">FSDZ</a>, it’s being implemented by <a href="https://www.opml.co.uk/">Oxford Policy Management</a> (OPM), in collaboration with Accion’s <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions">Global Advisory Solutions</a> and <a href="https://www.masterdata.co.za/">Master Data Management</a> (MDM).

The program is operating across three different markets of varying digital maturity — Sierra Leone, Zambia, and Tanzania — and with three different types of FSPs: insurers, fintechs, and commercial banks.

Helping families in Zambia cope with a health crisis

“I have never been so proud because, that season, insurance made that harvest possible,” recalls Rose Goslinga, CEO and co-founder of Pula. She saw how insurance enabled 10,000 farmers in East Africa to reap a harvest against all odds in 2009. Rains fell early that year — well before farmers were ready — and the seeds they had already planted didn’t germinate. In most places across Africa and around the world, those farmers would have been out of luck. However, because their seeds were covered by insurance, the farmers were able to pick up new bags and enjoy a successful harvest in the latter part of the season. On <a href="https://soundcloud.com/accioninternational/pula-and-protecting-smallholder-farmers-through-insurance">our latest episode of VentureKast</a>, the podcast about the most innovative and impactful financial inclusion startups in the world, I sat down with Rose to discuss <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/in-a-changing-climate-technology-provides-a-lifeline-for-farmers-c2eb5133d79f" target="_blank" rel="noopener noreferrer">Pula, Accion’s first ever investment in insurance</a> for farmers.
Pula develops insurance products and distributes them to farmers, while simultaneously offering farm advisory services so that, in Rose’s words, their customers “can be the best farmers they can be.” Pula bundles their insurance products with farm inputs, such as fertilizer, seeds, or credit. This substantially lowers risk for farmers who want to be able to invest in more expensive, higher-yielding seeds and fertilizers. The insurance provides income stability for farmers who are at the mercy of droughts, floods, and pests. Pula uses satellite data and imagery to be able to underwrite these policies more efficiently and provide timely agronomic advice.
Across Pula’s eight African markets, insurance penetration rates are typically less than 5 percent. Pula innovates to improve this. The farmers realize that insurance is useful, but they are not willing to pay its upfront cost.

<blockquote class="graf graf--pullquote graf--startsWithDoubleQuote">“They don’t wake up in the morning thinking, ‘I want to buy new insurance.’ They think, ‘I have school fees to pay’ or when it starts raining, ‘I need to buy fertilizer now; where is my money for fertilizer?’”</blockquote>
So, Pula figured out another way; they partner with input distributors to insure all bags of seeds and fertilizers — the costs are simply included in each bag. If the rain doesn’t arrive on time, the farmers can receive a voucher for another bag and plant again for a second chance at the harvest. The key is that the distributor pays for the insurance, not the farmer.
Technology underpins Pula’s business model. Satellite imagery monitors weather conditions to facilitate underwriting and expedite claims processes. QR codes allow farmers to register for insurance policies by pushing a few buttons. SMS messages relay immediate advice on when to apply fertilizer or top-dressing to maximize yields. This use of technology allows Pula to scale much faster than most insurance companies and to reach previously inaccessible communities.
“What do farmers really want? They don’t necessarily want insurance, but they do want fertilizer, they do want seeds,” says Rose. Pula’s short-term insurance products are revolutionary for many of its customers, especially considering how few of the world’s 500 million smallholder farmers have insurance. For Rose, the future means expanding Pula’s work to provide seeds, fertilizer, and insurance around the world.

Pula and protecting smallholder farmers through insurance

<h2 id="38cb" class="graf graf--h4 graf--startsWithDoubleQuote graf-after--h3 graf--subtitle"></h2>
[embed]https://vimeo.com/240681835[/embed]
<a class="markup--anchor markup--p-anchor" href="http://www.ilovezoona.com/" target="_blank" rel="nofollow noopener noreferrer">Zoona</a> is an African mobile financial services company. Through Zoona’s microfranchise model, thousands of independent agents in Zambia, Malawi, and Mozambique are able to provide basic financial services like money transfers, savings and credit to unbanked people in their own communities, creating a ripple effect that helps other small local entrepreneurs launch and operate businesses in turn. Over 1.5 million people regularly use financial services provided by Zoona’s agents, and over $1 billion in transactions have been processed on its system — a tangible contribution to financial inclusion.
Social impact is important to Zoona. It was the first company in Southern Africa to become a certified <a class="markup--anchor markup--p-anchor" href="https://www.bcorporation.net/" target="_blank" rel="nofollow noopener noreferrer">Benefit Corporation (B Corp)</a>, and was also part of the <a class="markup--anchor markup--p-anchor" href="http://www.girleffect.org/" target="_blank" rel="nofollow noopener noreferrer">Girl Effect</a> accelerator program. The company’s mantra is: “We exist to help communities thrive.”
As Zoona CEO Mike Quinn explains in this interview, another of his top priorities for the company is customer focus. He says that he encourages agents and employees at all levels to spend time with clients they serve, so “we can then… [build] products and services that meet their needs and expectations, and we can do it faster and better than anybody else.”
What’s important to Quinn himself, he says, is getting feedback from Zoona agents in the field. “What really inspires me is spending time with our agents — how they’re growing these enterprises with the tools and inputs we gave them, but really with their own energy and passion and drive to help their communities… [It’s] quite amazing.”
<img class="progressiveMedia-image js-progressiveMedia-image alignnone" src="https://cdn-images-1.medium.com/max/1440/1*cVKQiQSPTtrWgQNZ8BkIdQ.png" alt="Mike Quinn of Zoona" width="1200" height="600" />
This interview took place at the June 2017 <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/inclusive-fintech-leaders-meet-to-accelerate-innovation/" target="_blank" rel="noopener noreferrer">CEO Forum and Fintech for Inclusion Global Summit</a>, hosted by <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="nofollow noopener noreferrer">Accion Venture Lab</a>, <a class="markup--anchor markup--p-anchor" href="https://www.fmo.nl/" target="_blank" rel="nofollow noopener noreferrer">FMO</a>, and <a class="markup--anchor markup--p-anchor" href="http://www.quona.com/" target="_blank" rel="nofollow noopener noreferrer">Quona Capital</a>.
Zoona and Accion have partnered since 2012.

Mike Quinn of Zoona

Around the world, girls face disproportionate obstacles to achieve success and well-being. To bring awareness to gender disparity and the uphill battle that young women face, the United Nation designates October 11 as <a class="markup--anchor markup--p-anchor" href="http://www.un.org/en/events/girlchild/" target="_blank" rel="noopener noreferrer">International Day of the Girl</a>.
Financial inclusion isn’t just about numbers — it’s about people. And when more people have access to high quality, affordable financial services, they have more opportunities to thrive. This is especially true for women, who are often underserved by traditional financial institutions.
One company that is helping to close the gap for girls and women is <a class="markup--anchor markup--p-anchor" href="https://ilovezoona.com/" target="_blank" rel="noopener noreferrer">Zoona</a>, a partner that we’re proud to include in our portfolio. Zoona has revolutionized cash transfers in Zambia by setting up its kiosks for the unbanked in remote parts of the country.
Along with access to funds, Zoona also bring jobs and a chance at success for young women. Annetty Chama, 19, is one example. Each day, she makes the hour-long commute into the Zambian capital, Lusaka. The endless, bumpy bus ride could elicit complaints, but for Chama, it’s the perfect time to daydream.
<img class="graf-image alignnone" src="https://cdn-images-1.medium.com/max/800/1*MFtp7evJvKQemmGsBqUvkQ.jpeg" alt="Annetty Chama rides the bus to her job at Zoona" width="800" height="533" />
She dreams about being successful and running her own business one day. “You know when you just know you’re going to be successful,” she says. “I’ll be walking to work sometimes and suddenly get excited because I know I’m going to be successful one day.”
Chama wasn’t always so optimistic. She had finished school in 2014, but there was no money to continue her education. Her only option was to stay at home, helping her grandmother and mother with the cleaning and cooking, caring for her younger siblings, and nursing her father and brother — both of them terminally ill.
Then, one morning she had a phone call from her English teacher, who was looking for candidates to take part in a training program for Zoona.
<img class="graf-image alignnone" src="https://cdn-images-1.medium.com/max/800/1*3UxWJHPC2Alf3GK0dMPCCA.png" alt="Annetty Chama works in a Zoona kiosk in Lusaka" width="800" height="523" />
One month later Chama was working in a Zoona kiosk in Lusaka. In just six weeks she had gone from unemployed to being the main breadwinner for her family.
The Zoona program that trained Chama was born out of the ‘Girl Effect Accelerator’ — an initiative created by the Nike Foundation and the Unreasonable Group. Zoona was chosen for the Girl Effect Accelerator due to its focus on recruiting high potential young women from underprivileged communities to become part of its teller pipeline. It then helps tellers to increase and invest their earnings so that they can own their own kiosks, earn more, and empower people in their communities.
<img class="graf-image alignnone" src="https://cdn-images-1.medium.com/max/800/1*y3GDI-ARyJ1iH_9bVNej-Q.jpeg" alt="Annetty Chama at home with her family" width="800" height="533" />
Chama sleeps on a sofa in her grandmother’s two-bedroom house and gets up at 5am, but the routine doesn’t bother her. She says she is proud that she is the reason her 12-year-old brother can go to school. She’s also had a solar panel electricity box installed in her mother’s house using her savings so that they will finally have electricity.
She has accomplished all of this in the few months that she’s been working with Zoona. “The chores always take so long when you have no money,” she says as she arrives home and collects a container that she will fill with water at the communal tap. “But when you can dream about the future, nothing takes long.”
H/T to <a class="markup--anchor markup--p-anchor" href="http://www.quona.com/" target="_blank" rel="noopener noreferrer">Quona Capital</a> and Zoona.

Financially inclusive companies can give young women a shot at success

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Cape Town, South Africa, August 17, 2016 – African financial technology company Zoona has successfully raised $15 million dollars (two hundred million Rand) in a second round of financing. This Series B round is led by the International Finance Corporation (IFC), a member of the World Bank Group, and will help Zoona scale up its operations as it aims to reach 10 markets and 30 million active consumers across Africa by 2020.

First round investors Accion, whose investment is managed by Quona Capital, and Omidyar Network, an impact investment firm started by eBay founder Pierre Omidyar, reaffirmed their commitment to Zoona by more than doubling their respective investments during the Series B round.

The Lundin Foundation, a foundation that provides capital to high potential businesses to create wealth and alleviate poverty, also increased its investment in Zoona during this round.

The round also includes investment from 4Di Capital, a venture capital firm based in South Africa’s “Silicon Cape,” headed up by entrepreneur, investor and Zoona non-executive director Justin Stanford.

Zoona further announced that Patrick Pichette, former Chief Financial Officer at Google and long-time Zoona advisor has invested in the company.

“Technology has the potential to bring about financial inclusion to underserved communities across Africa,” said Zoona CEO Mike Quinn. “This investment round marks a key milestone in our journey to build a billion-dollar business that helps communities thrive. We are thrilled that investors the calibre of IFC, Accion and Quona Capital, Omidyar Network, Lundin Foundation and 4Di Capital buy into and support Zoona’s vision. Having Patrick Pichette invest, a visionary and long-time supporter of Zoona, is also very exciting.”

“As the world economies transit from cash-based to cashless, an entire infrastructure is needed to make that transition possible and ensure equal availability of both ‘currencies’, said Andi Dervishi, Global Head of IFC’s Fintech Investment Group. “Zoona has made this possible in Zambia and Malawi and is planning to do the same in many other markets in Africa. Whether in the form of a money transfer or a cash collection network, these retail footprints play an important role in acceptance and adoption of the new form of money and will be critical for the financial service industry as it transforms itself.”

“By enabling people to quickly, easily, and safely send and receive money when they need it most, Zoona has made a real difference in people's lives.  Zoona’s network allows its customers to make convenient, low-cost digital money transfers. Their customers no longer need to travel long distances to make these transactions in person or with cash," said Michael Schlein, CEO and president of Accion. “Its strong management team, client-driven approach, and commitment to diversity and inclusion position Zoona well to continue advancing this important mission.”

Zoona uses technology to provide financial services to underserved and financially excluded communities across Africa. Zoona has over 1.5 million active users, and its system has processed over $1 billion in mobile money transactions since its founding 2009. The company’s mobile money platform has already enabled more than 1,000 entrepreneurs to become Zoona Agents, creating over 2,500 jobs at 1,500 agent outlets in the process.

About Zoona

Zoona is an African fintech company founded in 2009 with the vision of helping communities thrive. Since launching, it has created over 2,500 jobs in Zambia and Malawi, empowered over 1,000 entrepreneurs to start their own business and allowed them to reach earnings of over $10 million. The company has processed over $1 billion in mobile money transactions. In 2012, Zoona raised $4 million in an international Series A investment round led by the Omidyar Network and Accion. For more information, visit <a href="http://www.ilovezoona.com">www.ilovezoona.com</a>.

About the International Finance Corporation

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. Working with 2,000 businesses worldwide, they use their six decades of experience to create opportunity where it’s needed most. In FY15, its long-term investments in developing countries rose to nearly $18 billion, leveraging its capital, expertise and influence to help the private sector end extreme poverty and boost shared prosperity. For more information, visit <a href="http://www.ifc.org">www.ifc.org</a>.

About Accion

Accion is a global nonprofit dedicated to building a financially inclusive world with economic opportunity for all, by giving people the financial tools they need to improve their lives. We are building the next generation of top-tier microfinance institutions, and over more than 50 years have helped build 65 such institutions in 32 countries on four continents that today reach millions of clients. Our impact investing initiatives are pushing beyond microfinance to catalyze more than 20 innovative start-ups dedicated to improving the efficiency, reach, and scope of financial services for the poor. And our Center for Financial Inclusion is helping to build a stronger industry with high standards and broad engagement. Currently, our work spans nearly two dozen countries, including the U.S., where we are the nation’s largest nonprofit microfinance network. For more information, visit <a href="http://www.accion.org/">www.accion.org</a>.

About Quona Capital

Quona Capital is an early growth-stage venture firm focused on financial technology for underserved consumers and businesses in emerging markets. Quona believes that the rapid pace of technological innovation and adoption —even among the marginalized in our global society—creates tremendous opportunities for consumers, entrepreneurs, and investors. Quona's partners have deep experience as investors and entrepreneurs in financial services and technology, and we have lived, worked and built companies in both the emerging markets we serve and the developed economies we seek to connect. Quona manages both the Accion Frontier Inclusion Fund and the investments held by Accion in its Frontier Investments Group portfolio, where Zoona sits. For more information, visit <a href="http://www.quona.com/">www.quona.com</a>.

About the Omidyar Network

Omidyar Network is a philanthropic investment firm dedicated to harnessing the power of markets to create opportunity for people to improve their lives. Established in 2004 by eBay founder Pierre Omidyar and his wife Pam, the organization invests in and helps scale innovative organizations to catalyze economic and social change. Omidyar Network has committed more than US$879 million to for-profit companies and nonprofit organizations that foster economic advancement and encourage individual participation across multiple initiatives, including Consumer Internet &amp;amp; Mobile, Education, Financial Inclusion, Governance &amp;amp; Citizen Engagement, and Property Rights. For more information, visit <a href="http://www.omidyar.com">www.omidyar.com</a>.

About 4Di Capital

4Di Capital is an independent venture capital firm based in South Africa’s “Silicon Cape”, specialising in high-growth technology venture opportunities with international ambitions, principally in the early funding stages. The firm has offices in Cape Town, South Africa and Atlanta, Georgia, in the U.S., and counts among its investors Reinet Fund S.C.A., E. Oppenheimer &amp;amp; Sons, and Convergence Partners. Am
ong others 4Di Capital has invested in enterprise web platforms, cloud scaling infrastructure, bio-mathematical health technology and financial technology ventures. For more information, visit <a href="http://www.4dicapital.com">www.4dicapital.com</a>.

About the Lundin Foundation

The Lundin Foundation is a globally recognised leader in impact investing. The foundation was founded by the Lundin family with the understanding that supporting the growth of innovative organisations offers the most promising pathway to strengthening local economic foundations and improving the livelihood of millions in Africa.

About Patrick Pichette

Patrick Pichette was Senior Vice President and Chief Financial Officer of Google Inc from 2008 until 2015. He currently sits on the boards of a number of organisations, including multiple high impact startups. In 2015 he received the National Order of Quebec.

MEDIA CONTACT:

Katie Mounts
<a href="mailto:kmounts@accion.org" target="_blank" rel="noopener">kmounts@accion.org</a>
+1 202.280.5859

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Fintech Startup Zoona Closes $15 Million Series B Round

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

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

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

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

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