<h3>“My husband wanted to start a small business but he could not get a big enough loan from the cooperative and did not qualify for a bank loan. The coyote, however, had no problem giving him a large loan to take him to America. My husband sends me money every month and I take the cash to the coyote to repay the loan.”</h3>
<h4 style="text-align: right;">– Anonymous woman from Santa Apolonia, Guatemala</h4>
Immigration to the United States from Guatemala is motivated by a myriad of factors, including rising rates of local violence and climate-change induced impacts on agriculture, but the main accelerant is extreme poverty without prospects for economic mobility. Guatemalans view the enormous potential for economic opportunity abroad as a pull factor, especially in contrast to the limited financial prospects that they face at home. This presents the financial sector in Guatemala with both the opportunity and imperative to support Guatemalans hoping to build and maintain wealth in their home country. This blog shares how the <a href="https://www.usaid.gov/" target="_blank" rel="noopener noreferrer">United States Agency for International Development (USAID)</a> is helping deepen financial access and usage among low-income and marginalized Guatemalans to create more economic opportunities within their communities.

Guatemala has the largest economy in Central America, an achievement fueled primarily by agricultural production, as the nation produces and exports some of the highest quality coffee and spices in the world. Guatemala also has rich cultural diversity, with a <a href="https://www.macrotrends.net/countries/GTM/guatemala/population" target="_blank" rel="noopener noreferrer">population of over 18 million</a>, over 40 percent of whom identify as one of the country’s more than 20 <a href="https://www.pionerophilanthropy.org/guatemalas-indigenous-community-a-struggle-against-poverty-racism-and-exclusion/" target="_blank" rel="noopener noreferrer">Indigenous communities</a>.
<blockquote class="pullquote--right">The financial sector in Guatemala has the opportunity and imperative to support Guatemalans hoping to build and maintain wealth in their home country.</blockquote>
Despite its rich culture and economic standing in the region, Guatemala has high social inequity, including a <a href="https://www.worldbank.org/en/country/guatemala/overview" target="_blank" rel="noopener noreferrer">poverty rate of 52.4 percent</a>, which has been further exacerbated by factors such as climate change and COVID-19-induced economic shocks. The country’s economy benefits from significant remittance inflows—which make up <a href="https://country.eiu.com/article.aspx?articleid=221764805&amp;Country=Guatemala&amp;topic=Economy&amp;subtopic=Forecast&amp;subsubtopic=Economic+growth" target="_blank" rel="noopener noreferrer">18 percent of the country’s GDP</a>—but this has yet to translate into significant reductions in poverty. In terms of financial access, according to the <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">latest Findex Data from 2022</a>, only 35 percent of adults have access to formal bank accounts, down nine percent from 2017 when 44 percent of adults had an account. The gender gap is six percent: 34 percent of women had an account in 2022 versus 40 percent of men, a one percent increase in the gender gap from 2017 when it was five percent. Many do not rely on formal lending sources, with only 11 percent of adults borrowing from a financial institution last year. The Center for Financial Inclusion wrote about<a href="https://www.centerforfinancialinclusion.org/rural-poor-and-pressured-by-climate-change-migration-and-financial-inclusion-in-guatemalas-western-highlands"> the potential for financial services to support rural opportunities in Guatemala</a>.

To break the poverty cycle in Guatemala, low-income families need access to financial services that will build and protect their wealth, enabling them to be more resilient in the face of climate-induced economic shocks and other unanticipated crises. Presently, low-income earners primarily interact with formal financial service providers, including banks, in an over-the-counter (OTC) manner, to cash out remittances without accessing the full suite of benefits that digital financial services can offer such as lower costs, higher speed, and security, as well as building a credit history to access loans.

As smartphone ownership rises in countries around the world, digital financial services (DFS) are a more efficient way to support low-income earners in wealth creation and management by offering convenience, cost savings, economic security, and broad accessibility—and removing the need to go to a physical bank or financial institution. Unfortunately, these service offerings are nascent in Guatemala—and even more so in the country’s rural areas. For example, according to the latest Findex, just 26 percent of adults made or received a digital payment in the last year—a low rate even in comparison to neighboring countries such as El Salvador (28%) and Honduras (32%). While DFS are gaining traction in Guatemala, more work needs to be done to make them accessible, practical, and useful to a broader consumer group.
<blockquote>While DFS are gaining traction in Guatemala, more work needs to be done to make them accessible, practical, and useful to a broader consumer group.</blockquote>
In partnership with DAI’s Digital Frontiers and ConsumerCentrix, USAID recently conducted qualitative customer market research to offer the Guatemalan financial sector concrete recommendations on how it might leverage DFS to positively impact the financial security of low-income and marginalized populations in Guatemala. This research, conducted with 112 participants in Guatemala City, Quiché, and Chimaltenango, identified clear segments and sustainable commercial potential, debunking common misunderstandings about the needs and demands of financially underserved Guatemalans. 

Here are a few key findings: 
<h2>While low-income communities are among the clientele of established providers, banks tend not to treat these communities as strategically critical customer segments deserving of tailored services.</h2>
Most banks mainly offer OTC services to low-income populations, failing to transition these customers to full account holders. The few banks that dominate the financial sector provide bank accounts to only four million people out of the country’s over 18 million population. They offer banking OTC to about five million remittance receivers and one million government-to-person (G2P) and humanitarian aid recipients. Tigo Money, the mobile money provider, offers OTC services to about 700,000 people. The main financial account providers are rural cooperatives, which have about three million clients, and microfinance institutions, which serve about half a million primarily urban clients. 
<h2>A widely-held assumption among financial institutions—that low confidence and limited education are the main barriers to access and use among low-income individuals—is not backed by evidence.</h2>
Providers name literacy, confidence, and aversion to formal financial services as the primary reasons why low-income earners are not formally banked. Yet this study demonstrated that poor customer service, including non-transparent banking fees, which is closely related to low trust in the financial sector, is a major issue alongside stringent requirements for accessing credit—a need among those looking to build a better future for themselves. 
<h2>Latent demand for formal finance exists, and there is awareness of and openness to using digital channels for financial transactions.</h2>
Research participants across all age groups and localities have smartphones and sufficient network connectivity to access DFS. Research found that digital financial literacy is present, particularly among younger segments, and that these segments can and are willing to support their older relatives in using technology. While concerns exist around protecting their security and making mistakes online, there is a shared understanding among participants that DFS is the future, and they are open to using DFS where it can save time and money. Most existing users have prior experiences with bank and cooperative mobile banking applications, generally as complementary to an account. There is little to no awareness of other DFS solutions or even how mobile banking applications could be used more broadly—representing a real opportunity for the financial sector.
<blockquote class="pullquote--left">There is little to no awareness of other DFS solutions or even how mobile banking applications could be used more broadly—representing a real opportunity for the financial sector.</blockquote>
Considering the nascent status of digital finance in Guatemala, financial service providers can start by tailoring products to the most viable segments to first create a critical mass before reaching out to those most in need: the lowest income and most rural consumers. Using criteria around population size, aggregation potential, income regularity, and digital readiness, the research identified two consumer segments with the strongest opportunities for DFS with the most potential use cases, regular income flows, and capacity for aggregation: 1) domestic remittance senders (such as domestic workers) and their recipients, and 2) international remittance recipients. 

Research showed opportunities in digitizing domestic remittance transfers and receipt of international remittances to an account that can be used for a broader set of financial needs including utility payments, savings, and credit facilities based on remittance flows to be used for a microbusiness or household needs. 

Low-income and vulnerable Guatemalans need financial products that help them manage their variable cash flows and to manage risks, including those arising from climate change, and to help them access more economic opportunities. Prototype testing of a potential solution is underway, and the team will produce a full Digital Financial Services Market Assessment Report that outlines these DFS opportunities in greater detail. Stay tuned for the full report—expected in spring 2023.

Letting the Consumer Speak: The Reality of Access to Finance in Guatemala

The pandemic <a href="https://www.worldbank.org/en/news/press-release/2022/06/29/covid-19-drives-global-surge-in-use-of-digital-payments" target="_blank" rel="noopener noreferrer">accelerated the adoption of digital financial services</a>, especially in emerging economies, largely due to the number of people who <a href="https://www.un.org/sustainabledevelopment/blog/2021/12/as-internet-user-numbers-swell-due-to-pandemic-un-forum-discusses-measures-to-improve-safety-of-cyberspace/" target="_blank" rel="noopener noreferrer">began using the internet for the first time</a>. The <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer">Global Findex 2021</a> found that of the adults in developing countries who paid utility bills directly from an account, one-third did so for the first time during the pandemic. In India, more than 80 million adults made their <a href="https://www.worldbank.org/en/news/press-release/2022/06/29/covid-19-drives-global-surge-in-use-of-digital-payments" target="_blank" rel="noopener noreferrer">first digital merchant payment</a> after the start of the pandemic; in China, over 100 million adults did the same. However, the Findex 2021 data also showed a rise in consumer protection risks and cautioned that less experienced financial consumers were more vulnerable to such risks.

As digital financial services proliferate, new risks emerge. One of these risks is known as <a href="https://www.deceptive.design/" target="_blank" rel="noopener noreferrer">deceptive designs</a>, which are tricks used by companies when designing user interfaces that have the effect – either deliberately or otherwise – of obscuring, subverting, or impairing consumer autonomy, decision making, or choice. In other words, deceptive designs are used to manipulate people into making decisions that may not be in their best interest. Deceptive design is all around us and is increasing with rapid digitalization.

Those most vulnerable to deceptive designs are consumers with low digital capability, low financial means, or are those who are vulnerable because of life events or mental health issues. The use of deceptive designs in financial services, especially when catering to low-income and vulnerable consumers, can cause harm such as loss of agency and risks of data privacy, and can extend to financial losses that increase vulnerabilities and erode trust in the usage of digital financial services.

While the implications of deceptive designs on user privacy and data protection are beginning to be discussed among regulators, consumer protection concerns have yet to be addressed. This is partly because design is hard to regulate, and manipulative design can exploit existing laws and legal loopholes.
<h1>Deceptive Design Patterns Are Ubiquitous</h1>
In the last week, how often have you used an app on your smartphone or a website to order groceries? To shop for clothes? Or logged in to read online news? Chances are at least once. It is also likely that you encountered several deceptive designs during that time. Harry Brignull, who raised awareness of deceptive design, features nearly <a href="https://www.deceptive.design/hall-of-shame/all" target="_blank" rel="noopener noreferrer">400 examples of deceptive design practices</a> on his website. The New York Times, a publication that was one of the earliest to speak about deceptive designs, uses deceptive designs to make their paywall “smarter” and <a href="https://www.techdirt.com/2022/08/19/when-tech-companies-do-it-the-ny-times-calls-it-dark-patterns-when-the-ny-times-does-it-its-called-being-smart/" target="_blank" rel="noopener noreferrer">make it difficult to cancel subscriptions</a>.

In Kenya and Tanzania, <a href="https://www.cgap.org/sites/default/files/Focus-Note-Consumer-Protection-in-digital-Credit-Aug-2017.pdf" target="_blank" rel="noopener noreferrer">CGAP’s research</a> found several challenges with how digital lenders disclose actual pricing to consumers, using monthly or weekly interest rate figures instead of a standardized calculation like an annualized percentage rate (APR). <a href="https://wiredspace.wits.ac.za/server/api/core/bitstreams/d6e32783-24e7-4e50-8bcf-8c58f84bd872/content" target="_blank" rel="noopener noreferrer">Research by Mazer and Rowan (2016)</a> also found that some digital lenders only disclosed the price after consumers clicked the “I accept” button and the loan was executed. Insurance, a financial product that often is accused of mis-sale, can also use deceptive designs when sold online. In the UK, Currys, a well-known retailer, <a href="https://twitter.com/darkpatterns/status/1561031067334844418" target="_blank" rel="noopener noreferrer">nudges online shoppers during check out</a> by preventing them from moving forward unless they choose to buy insurance. In India, until laws changed recently to prevent the mis-sale of travel insurance, it was common to see travel portals use <a href="http://rsrr.in/wp-content/uploads/2021/04/UNPACKING-DARK-PATTERNS-UNDERSTANDING-DARK.pdf" target="_blank" rel="noopener noreferrer">pre-checked buttons to bundle travel insurance</a> with ticket purchase.
<h1>Focus on Consumer Protection by Design</h1>
The nature of these emergent risks requires new partners to work together – including designers, researchers, technologists, civil society actors, and lawyers who work on consumer rights, along with regulators, supervisors, investors, financial service providers, and tech-based providers. To kick off this work, CFI and <a href="https://www.credit-suisse.com/us/en.html" target="_blank" rel="noopener noreferrer">Credit Suisse</a> are partnering to leverage the diverse talent and expertise of Credit Suisse employees through the Innovation for Impact series, a spinoff of the bank’s <a href="https://www.credit-suisse.com/careers-news/en/articles/careers/spark-ideas-explore-new-trails-202012.html" target="_blank" rel="noopener noreferrer">Future of Banking Hackathon</a>. Applying Credit Suisse’s Fresh Perspectives! Framework, the bank’s innovation lifecycle approach, teams of Credit Suisse employees will be guided through addressing the challenges that low-income consumers can face from the use of deceptive designs in financial services. The teams will work together to generate novel ideas, and rapidly test, learn, and adapt their solutions to address the presented challenges.

Through its <a href="https://www.credit-suisse.com/about-us/en/our-company/corporate-responsibility/economy-society/financial-inclusion.html" target="_blank" rel="noopener noreferrer">Financial Inclusion Initiative</a> (FII), Credit Suisse has partnered with Accion for over a decade, including as a founding supporter of CFI. Through the FII, Credit Suisse aims to support the availability of innovative and financially inclusive solutions to help advance progress towards the UN Sustainable Development Goals (SDGs) by providing both financial as well as human resources. The Innovation for Impact series provides a win-win opportunity for Credit Suisse employees to leverage and develop their expertise and innovation capabilities while at the same time contributing to an important challenge facing the inclusive finance sector.

The partnership between Credit Suisse and CFI is a way to begin generating awareness of deceptive designs with investors and financial service providers, and the harms they can cause to low-income consumers. The work on deceptive designs is part of a larger body of work that CFI is developing that looks at how to embed consumer protection by design for systemic change to create digital, inclusive financial systems that are more equitable, less discriminatory, and more empowering.

CFI is launching a strategic area of work around ‘Consumer Protection by Design’ to identify and address newer risks that emerge as inclusive finance is digitalized. This area of work will define the term consumer protection by design, identify newer risks (including deceptive designs), and assess whether these risks tend to be prevalent in specific geographies, industries, and company stages, and if they target specific user groups that are more susceptible. CFI will also conduct a landscape analysis of the specific harms posed to vulnerable consumers with a focus on identifying market monitoring tools and regulatory solutions that can be used to mitigate these harms.

The Hidden Traps of Deceptive Design: Embedding Consumer Protection into DFS

The recent results from the <a href="https://worldbankgroup-my.sharepoint.com/personal/sansar1_worldbank_org/Documents/Findex%20report%202021/Dissemination/globalfindex.worldbank.org" target="_blank" rel="noopener noreferrer">Global Findex 2021</a> show global gains in account ownership and in account usage in 2017—good news given the widespread financial impact of the pandemic. Today, 71 percent of adults in developing economies have a financial account. Yet the findings on financial well-being show that there is more work to do. 
<blockquote class="pullquote--left">71% of adults in developing economies have a financial account, yet the findings on financial well-being show that there is more work to do. </blockquote>
As the type of risks facing low-income consumers evolve, including rising food and fuel prices, and climate shocks increasing in frequency and intensity, we need an expanded definition of responsible finance in which all stakeholders – providers, policymakers, investors, donors, and more – are not just reacting to client protection risks but also anticipate and proactively work to build resilience, mitigate risks, and improve the financial well-being of consumers for the long term. 

Improving how we measure consumer outcomes is critical for an expanded definition of responsible finance. A sway of new research – recently discussed in the <a href="https://globalrff.org/events/june-2022" target="_blank" rel="noopener noreferrer">Responsible Finance Forum</a> – has shown that while access to finance is growing globally, financial health and well-being are stagnating or even declining.   

The Global Findex 2021 introduced a new set of metrics on <a href="https://www.worldbank.org/en/publication/globalfindex/brief/the-global-findex-database-2021-chapter-3-financial-resilience" target="_blank" rel="noopener noreferrer">financial well-being</a>. The data measures three dimensions of financial well-being: (a) managing unexpected financial events (financial resilience); (b) experiencing limited financial stress; and (c) having the confidence and capability to independently use financial products. The data suggests that while there have been gains in account ownership and in account usage since 2017, there is a need for more emphasis on all three components.  
<h1 aria-level="2">55 Percent of Adults in Developing Economies Are Resilient to Financial Shocks </h1>
The Global Findex survey measures “resilience” as the ability to access money equal to 5 percent of gross national income—or about $3500 in the US and 350 Rupees in India-- within 30 days without much difficulty when faced with an unexpected expense. In developing economies, only 55 percent of adults could do so. For comparison, that share is 79 percent in high-income economies. Resilience is an increasingly important dimension of responsible finance as extreme natural disasters are estimated to <a href="https://www.worldbank.org/en/news/press-release/2016/11/14/natural-disasters-force-26-million-people-into-poverty-and-cost-520bn-in-losses-every-year-new-world-bank-analysis-finds" target="_blank" rel="noopener noreferrer">push 26 million people into poverty</a> each year, and the financial sector industry has a role to play in promoting <a href="https://www.centerforfinancialinclusion.org/green-inclusive-finance-a-framework-for-understanding-how-financial-services-can-help-low-income-people-weather-climate-related-risks">adaptation, resilience,  mitigation, and transition</a> of livelihoods affected by climate change.  
<blockquote class="pullquote--right">Women and the poor are less likely than men and richer individuals to be resilient.</blockquote>
Women and the poor are less likely than men and richer individuals to be resilient. One reason is that both women and adults living in poorer households are more likely to rely on family/friends as their front-line source of emergency money. Yet friends and family are among the least reliable sources of money in every developing economy region. There are a number of reasons for this. One is that family and friends may be confronting the same sources of financial stress at the same time, as is the case during the COVID-19 pandemic, or with a natural disaster such as a drought, flood, fire, or earthquake, or in a systemic economic downturn. In contrast, the Global Findex finds that <a href="https://www.weforum.org/agenda/2022/07/financial-resilience-promote-savings/" target="_blank" rel="noopener noreferrer">personal savings</a> are the most reliable source of emergency money. 

&nbsp;
<h4>Adults in developing countries identifying the source of, and assessing how difficult it would be to access, emergency money (%), 2021</h4>
&nbsp;

<img class="size-full wp-image-45211 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2022/10/Findex-blog-pic1.png" alt="" width="744" height="396" /> 

&nbsp;
<h1 aria-level="2">The Majority of Adults in Developing Economies Worry About Finances </h1>
The objective reality of not having enough money—or not being able to obtain necessary funds in time to address emergencies—contributes to the more subjective sense of feeling financially worried. In developing economies, more than two-thirds of adults say they are very worried about one or more common sources of financial stress: living expenses for old age; medical costs from a serious illness/accident; monthly bills and expenses; and school or education fees. Twenty-two percent of developing economy adults are very worried about all four of the specified issues.  

In high-income economies, in contrast, only a fifth of adults say they are very worried about one of those four issues, and the share of adults who are very worried about all four is only 4 percent.  

Medical expenses were the biggest financial worry for both men and women in every world region. The financial impacts of COVID-19 likewise register as a significant source of worry, particularly in low- and low-middle-income economies. 
<h1 aria-level="2">Limited Financial Experience and Ability Can Expose Consumers to Financial Abuse </h1>
Beyond resilience and stress, low financial ability makes it difficult for adults to navigate the marketplace for retail financial services. Both account holders and the unbanked display low ability in certain markets. The Global Findex 2021 found, for example, that 31 percent of mobile money account owners in Sub-Saharan Africa couldn’t use their account without help from a family member or a mobile money agent. About two-thirds of unbanked adults similarly said that if they opened an account (excluding mobile money) at a financial institution, they could not use it without help. This lack of financial ability makes current and prospective account holders vulnerable to bad information and to exploitation.  
<blockquote>Low financial ability makes current and prospective account holders vulnerable to bad information and to exploitation.  </blockquote>
Financial service providers can exacerbate that challenge—sometimes unintentionally—when their fees or terms of service are unclear; when they use aggressive marketing; and when they have poor dispute resolution processes.  

One way in which low financial ability can affect account holders can be seen in the Global Findex 2021 finding that about 20 percent of wage recipients in developing economies paid higher fees than expected in order to receive wages directly into their account. In certain economies, that share is as high as 40 percent of wage recipients. We cannot know if the account holder simply didn’t understand the disclosed fee schedule, or if the fee terms were never disclosed. Either way, the fact that account holders are paying more than they expect to use services offers one example of how having an account and using it do not inevitably lead to well-being.  
<h1>Encouraging Responsible Finance and Improving Financial Well-being </h1>
Economies tend to put the burden of financial well-being on the consumers themselves. Making progress will require instead that policymakers and the financial sector industry treat consumer well-being as a shared responsibility. The policy environment also needs to prioritize both consumer protection and attention to the shifting nature of consumer risks. As the nature of these risks evolve, responsible finance has an important role to play in improving resilience and reducing financial stress. This includes, for example:  
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Encourage the design of high-quality products that help consumers build resilience and their capacity to prepare for, navigate through, and recover from financial shocks.  </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><a href="https://www.unsgsa.org/publications/measuring-financial-health-concepts-and-considerations" target="_blank" rel="noopener noreferrer">Measure</a> and evaluate how these solutions are resulting in changes in well-being. </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Ensure financial service providers clearly disclose product features and fees so that consumers understand what products are most suited for their needs, how to responsibly use these products, and when and how much they will be charged. </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Inform consumers about the risks of predatory financial practices and what they look like, in plain language and in a format that users can easily understand.</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Incentivize financial institutions to incorporate <a href="https://www.poverty-action.org/program-area/financial-inclusion/consumer-protection-initiative" target="_blank" rel="noopener noreferrer">behavioral insights</a> and design research into their products and services. For example, product design features that help people act on pre-established intentions (like building savings for an emergency or for a specific goal) </li>
</ul>
The vast progress of the past decade on increasing account ownership should be lauded. But these gains also mean that the remaining unbanked consumers are among the hardest to reach and the most vulnerable to financial exploitation. Taking steps now to reduce the barriers to financial well-being can improve the financial lives of existing account holders and prepare the financial ecosystem to benefit some of the most vulnerable in our economies.

Responsible Finance and its Role in Improving Financial Resilience and Well-Being

On August 10, the Reserve Bank of India (RBI) released their <a class="Hyperlink SCXW9814176 BCX0" href="https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54187" target="_blank" rel="noreferrer noopener">recommendations on digital lending</a>. This is a significant moment, especially since the Indian government recently withdrew the data protection bill that aimed to protect consumers from the risks of digitalization and data proliferation. The bill, launched in 2019, was designed in light of concerns about data misuse by private players. A new bill is proposed as an alternative. However, while India awaits this, data regulation depends on sectoral regulations. These new recommendations on digital lending will help to regulate the multitude of digital lending apps that have exploded across India, and how they use consumer data.
<h1>Background on India’s Digital Lending Regulations</h1>
In this age of rapid digitalization, innovation opportunities grow as fast as the risks they pose to consumers, making it challenging for regulators to keep abreast of the changes. The RBI Working Group on digital lending reported that the <a class="Hyperlink SCXW115547155 BCX0" href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&amp;ID=1189#S24" target="_blank" rel="noreferrer noopener">volume of digital credit has grown twelve-fold</a> between 2017 and 2020. <a class="Hyperlink SCXW115547155 BCX0" href="https://www.cgap.org/blog/evolving-nature-and-scale-consumer-risks-digital-finance#:~:text=These%20risks%20include%20mobile%20app,may%20result%20in%20over%2Dindebtedness." target="_blank" rel="noreferrer noopener">CGAP’s research on risks</a> in digital financial services (DFS) reveals that as of 2021 there are over 60 identified consumer risks, compared to only seven risks identified in 2015; and this list only continues to evolve.
<blockquote class="pullquote--left">India has been at the epicenter of DFS growth, but this growth has been accompanied by growing concerns about consumer risks.</blockquote>
India has been at the epicenter of <a href="https://www.imf.org/external/pubs/ft/fandd/2021/07/india-stack-financial-access-and-digital-inclusion.htm" target="_blank" rel="noopener noreferrer">DFS growth</a>, driven by extensive investments by the government in digital infrastructure, <a href="https://indiastack.org/" target="_blank" rel="noopener noreferrer">India Stack</a> – a comprehensive digital identity, payments and data management system, and investments. The <a href="https://www.investindia.gov.in/sector/bfsi-fintech-financial-services#:~:text=The%20digital%20investment%20market%20is,to%20%2410%20tn%20by%202026." target="_blank" rel="noopener noreferrer">digital investment market</a> in India is projected to be worth $14.3 billion in 2025, growing at a 5-year CAGR of 22.4 percent. This growth in DFS has been accompanied by growing concerns about consumer risks, such as <a href="https://themorningcontext.com/internet/why-does-upi-fail-so-often-for-banks-like-sbi" target="_blank" rel="noopener noreferrer">high failure rates in digital payments</a>, fraud, and poor redressal, among other challenges. Digital lending has been leading the charge on both innovations and rising consumer risks and, in response, the Reserve Bank of India (RBI) <a href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&amp;ID=1189#S1" target="_blank" rel="noopener noreferrer">constituted a working group</a> on digital lending in 2021.

This is not the first time the RBI has needed to formulate regulations to protect consumers. The RBI’s past interventions in <a href="https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=20377" target="_blank" rel="noopener noreferrer">microfinance</a> and <a href="https://www.rbi.org.in/Scripts/FS_report.aspx" target="_blank" rel="noopener noreferrer">digital payments</a> have allowed them to balance their conflicting goals of inclusion, consumer protection, stability, and growth-led innovation.

Digitalization and modularization of financial services create new regulatory challenges. Three challenges that stand out in the Indian context are lower entry barriers, India’s complex legal regime, and the absence of guidelines about what consumer data apps can collect.

To allow innovation, entry barriers are low, a concern raised in the<a href="https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&amp;ID=1189" target="_blank" rel="noopener noreferrer"> working group’s report</a> especially as the market matures – a <a href="https://www.tuko.co.ke/378517-digital-lending-fixing-credit-access-barriers-fostering-growth-smes.html#:~:text=Digital%20lending%20is%20uniquely%20positioned%20to%20fix%20credit,poverty%20reduction%20and%20boosting%20national%20wealth%20and%20development." target="_blank" rel="noopener noreferrer">problem that previously has been seen and addressed</a> by regulators in Kenya. In India, this led to the <a href="https://www.centerforfinancialinclusion.org/combating-the-rise-in-fraudulent-fintech-apps">creation of lending apps, several of which were fraudulent and predatory</a>, and were launched during the pandemic when demand was high due to consumers’ loss or drop in income, loss of jobs, and health shocks.

India’s <a href="https://prsindia.org/files/policy/policy_committee_reports/1370600640_FSLRC%20Report%20Summary.pdf" target="_blank" rel="noopener noreferrer">complex and fragmented regulatory and legal regime</a> has been written about extensively in the past, and was acknowledged as a challenge by the RBI Working Group on digital lending in their recent report. In an era of modularization, where efficiency in delivery of digital credit is driven by partnerships with banks and non-bank finance companies, call centers, collection agents, and others, not all entities are directly regulated by RBI. This adds a layer of complexity to India’s already complex legal system that governs lending.

Earlier this month, India’s government <a href="https://themorningcontext.com/internet/india-withdraws-personal-data-protection-bill?type=short" target="_blank" rel="noopener noreferrer">withdrew the data protection bill</a>, which sought to empower citizens with rights related to their data. The removal of this bill now creates challenges for consumers in India, especially women and minority groups who can be targeted and don’t have control over how their data is used. Recent research in India showed that the very act of going online can <a href="https://www.dai.com/fi-cyber-user-trust.pdf" target="_blank" rel="noopener noreferrer">violate societal expectations of women</a>. Besides the obstacle this creates in narrowing the gender gap in India, the lack of laws and guidelines has led digital lending apps to seek <a href="https://www.cgap.org/blog/digital-consumer-credit-india-time-take-closer-look#:~:text=While%20there%20is%20no%20official%20count%20of%20the,least%20157%20apps%20operating%20as%20of%20July%202021." target="_blank" rel="noopener noreferrer">disproportionate permissions</a>, and then use consumer data to <a href="https://www.ft.com/content/16c86479-e88d-4a28-8fa4-cd72bace5104" target="_blank" rel="noopener noreferrer">“debt shame”</a> consumers who delay repayments. The prospect of social censure can be a powerful barrier for women in adopting DFS.
<blockquote class="pullquote--right">Digital environments exacerbate financial services risks that have existed for a long time.</blockquote>
It is worth repeating that digital environments exacerbate financial services risks that have existed for a long time. There are several ways that we see risks evolve in a digital era. Digital lenders in India communicate about prices in different ways, making it harder for consumers to compare and choose. Digital lenders requested processing fees upfront, regardless of whether or not a loan would be disbursed – a scheme profitable for lenders, but detrimental to consumers. Complaint channels in a digital environment are often non-existent or dehumanized, causing many consumers <a href="https://www.cgap.org/blog/analyzing-social-media-spot-digital-consumer-credit-risks-india" target="_blank" rel="noopener noreferrer">to resort to social media</a> to air their complaints. The absence of well-designed complaint channels can be a barrier to consistent use and can contribute to a lack of trust, especially among women. Finally, credit reporting during the pandemic took a backseat due to loan moratoria, and the modularized nature of digital lending meant that fintech lenders would often not report to credit bureaus, weakening existing credit reporting mechanisms even as the digital lending space evolved.
<h1>Positives of the New Recommendations</h1>
Not all digital lending is bad. We know that <a href="https://www.imf.org/-/media/Files/Publications/covid19-special-notes/en-special-series-on-covid-19-digital-financial-services-and-the-pandemic.ashx" target="_blank" rel="noopener noreferrer">timely access to affordable loans can help smooth cash flows, address emergency liquidity requirements, and offer consumers greater choice</a>. Therefore, the RBI’s recommendations based on the working group’s report are an encouraging first step to addressing consumer risks before trust in digital lending is eroded.

The <a href="https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=54187" target="_blank" rel="noopener noreferrer">recommendations for implementation</a> made by the RBI on August 10, include direct execution of loans, mandates to reveal the annualized percentage rate (APR), and a cooling off period that allows consumers to change their minds.

Now with these recommendations in place, regulated entities – institutions that are directly regulated by the RBI – must disburse directly to borrowers’ bank accounts, except in a narrow set of cases of co-lending transactions. This is a positive step that reduces the bargaining power of intermediaries that may be involved and clearly positions that the risk of lending lies with banks and non-banks and not the originators of loans. Therefore, the onus of consumer protection lies with the institution taking on the risk of lending.

The mandate to reveal the APR creates a standard playing field for all lenders and allows consumers to compare rates – a crucial step. Finally, the cooling off period with loans is an excellent move and sets a positive precedent for regulators in other jurisdictions. While this feature is normally associated with insurance products, the extension to loans provides consumers with choice and the ability to change their minds without facing financial losses. However, the operationalization of this recommendation will require consultation with market players, since it does impact lenders’ cash flows.
<blockquote>Even though these guidelines are not a perfect replacement for a comprehensive data protection bill, they do protect against misuse of consumer data gathered through digital lending apps.</blockquote>
While India awaits a new data protection bill and eventually a new law, individual regulators must safeguard consumers’ data privacy interests. Even though these guidelines are not a perfect replacement for a comprehensive data protection bill, they do protect against misuse of consumer data gathered through digital lending apps. They prevent disproportionate permissions from being sought by lending apps, allow access to camera, microphone, and location data as a one-time event during onboarding or checking KYC, and outline standards to be achieved in case of a security breach.
<h1>Gaps That Still Need to Be Filled</h1>
More is needed to establish a common understanding of consumer protection risks and redress mechanisms among all regulated entities and institutions involved in the delivery of loans.

While being transparent about APR is a positive first step, in a market with hundreds of lending apps and several more that launch daily, consumers must be able to compare lenders. This need presents a market opportunity: while price comparison sites exist for insurance products, it is time to have them for digital loans. Ideally, lenders would compete to provide the best terms to borrowers but we likely will need to wait some time for this advancement.

Complaint channels need to be redesigned to be consumer-friendly and regulators need to use <a href="https://www.cgap.org/topics/collections/market-monitoring/tools">appropriate market monitoring tools</a> to analyze and identify early warnings. This also presents an opportunity to test and evaluate consumer complaint mechanisms that exist – an area of emerging research interest for CFI.

And finally, the RBI proposes that underwriting algorithms used by lenders should be subject to audits. The RBI noted that while this recommendation was accepted in principle, it would require further examination prior to implementation. This is an important first step to ensure that high-stakes algorithms aren’t <a href="https://www.centerforfinancialinclusion.org/digital-credit-algorithms-in-india-expanding-access-or-cementing-exclusion">further cementing</a> financial exclusion. At the same time, algorithmic auditing, particularly by regulators of private sector algorithms, is a nascent field and must balance accountability with a company’s proprietary intellectual property. <a href="https://dai-global-digital.com/how-four-awardees-are-paving-the-way-for-a-more-equitable-ai-powered-future.html">Global research on this topic</a> is just beginning and partnerships with regulators would enable practical action.

It Is the Best of Times, and the Worst of Times: India’s New Digital Lending Recommendations

Imagine you’re a young mother living on the outskirts of Kampala, Uganda. Due to unexpected medical expenses for your son, you decide to apply for a digital loan. You download a credit app that you heard about from a neighbor, answer a few questions about yourself, consent to have data on your phone shared, and wait 30 minutes. Then, you receive a rejection message: “Your credit limit is 0 UGX.”

You heard that having an active mobile wallet would increase your chances of being approved for a loan and made sure your MTN mobile wallet was active before applying. You’re confused about why your loan application was rejected and wonder how to improve your future chances. Most importantly, you’re still unsure how you will cover your son’s medical expenses.

Understanding the reasons behind credit decisions is increasingly more difficult as algorithms, rather than front-line staff, make and communicate outcomes. <a href="https://centerforfinancialinclusion.org/accountability-for-algorithms-a-balancing-act-for-governments/">Complex algorithms</a>, fueled by alternative data, are driving finance decisions about and for customers -- from underwriting to insurance to <a href="https://centerforfinancialinclusion.org/responsible-social-protection-lessons-from-covid-19-digital-cash-transfers/">eligibility for social protection</a>. As algorithms become more commonplace, we must look for ways to increase transparency around decisions and inform low-income customers about their options for rectification.
<h1>In the Dark on Automated Decisions</h1>
In honor of <a href="https://www.consumersinternational.org/what-we-do/world-consumer-rights-day/" target="_blank" rel="noopener noreferrer">World Consumer Rights Day</a>, CFI is researching how credit decisions are made and communicated to low-income consumers, the rights consumers deserve, and the tools they need to understand – and be able to challenge – those decisions.

In the not-so-distant past, most financial institutions relied on front-line staff to make and communicate decisions to customers. If a customer was rejected for a loan or insurance product, she could ask a loan officer to explain how her history was evaluated and could work with the officer to correct data errors. However, as digital models leveraging algorithms gain traction, the transparency that customers used to rely on from their in-person engagements with loan officers or agents has disappeared.
<blockquote class="pullquote--right">As digital models leveraging algorithms gain traction, the transparency that customers used to rely on from their in-person engagements with loan officers or agents has disappeared.</blockquote>
Because most customers are unaware of how an underwriting algorithm works or what data inputs are used, many customers are also unclear about how a decision is made or whom to ask for more information. This lack of clarity was evident from <a href="https://centerforfinancialinclusion.org/trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users/">CFI’s survey-based research</a> in Rwanda. Out of a sample of 30 digital borrowers in Rwanda, 16 respondents had been rejected for a digital loan but only 10 of those recalled an explanation for the denial. Of those 10 who received an explanation, six were dissatisfied with the provider’s communication; some received only a basic explanation such as, “Your credit limit is zero.”

When the full survey sample was asked to describe what an acceptable explanation of loan denial might look like, there was a clear ask for more specificity and more communication. A 52-year-old woman shared her experience: “They denied me a loan because I delayed to repay when I was in a hospital and very sick. If they had called to explain the reason for the denial, I would have explained my condition.” A 38-year-old woman reasoned: “When you delay to repay, they call to remind you about the loan. They should then do the same when you are denied a loan.”
<h1>Help for Consumers: Legislation, Awareness, Support</h1>
So, what can consumers do in this increasingly digital era? Most data protection frameworks give consumers the right to access and rectify their data. However, our Rwanda research suggests that consumers are largely unaware of what is being inputted in the first place. While data protection efforts – like the 2019 Kenyan Data Protection Act that gives individuals the right to request the rectification of personal data that is “inaccurate, out-of-date, incomplete or misleading” – are a good first step, more needs to be done to communicate to customers about the inputs, decisions, and digital rights.
<blockquote class="pullquote--left">More needs to be done to communicate to customers about the inputs, decisions, and digital rights.</blockquote>
Many nascent data protection frameworks offer consumers the right to be informed if they’ve been subjected to an automated decision by an algorithm, for example. For instance, the <a href="https://www.minijust.gov.rw/fileadmin/user_upload/Minijust/Publications/Official_Gazette/_2021_Official_Gazettes/October/OG_Special_of_15.10.2021_Amakuru_bwite.pdf" target="_blank" rel="noopener noreferrer">Rwandan Data Privacy Law</a> mandates that individuals should be informed about the logic involved in their automated decision at the time of personal data collection. <a href="https://www.dataguidance.com/notes/brazil-data-protection-overview" target="_blank" rel="noopener noreferrer">Brazil’s Data Protection Act</a> gives consumers the ability to ask for a review of a decision made with their personal data taken solely through automated processing; included in the review should be the criteria and procedures used for the decision.

But what this will look like in practice, and how it will be enforced, remains to be seen. And given what we know about the challenges facing low-income consumers in accessing and feeling empowered to use grievance redressal mechanisms, there is concern that these data rights will not be fully exercised in a way that keeps companies accountable.

Consumer advocacy organizations are a potential avenue to help raise the voice of consumers vis-à-vis their digital rights. For instance, <a href="https://centerforfinancialinclusion.org/responsible-social-protection-lessons-from-covid-19-digital-cash-transfers/">our research</a> on government-to-person digital payments during COVID-19 found that civil society organizations often were the first to sound the alarm about digital systems failing or customers poorly served.

Whether it’s a mother in Kenya applying for a credit product to pay for medical expenses, or a farmer looking to insure his crops in the face of an increasingly unpredictable climate, we must support consumers’ voices and increase transparency around how digital decisioning is made.

Along with other leading consumer advocates around the world and in partnership with <a href="https://www.consumersinternational.org/" target="_blank" rel="noopener noreferrer">Consumers International</a>, we’re excited to participate at the <a href="https://www.consumersinternational.org/fair-digital-finance-forum-2022/" target="_blank" rel="noopener noreferrer">Fair Digital Finance Forum</a> this week. Take a look at their <a href="https://www.consumersinternational.org/fair-digital-finance-forum-2022/" target="_blank" rel="noopener noreferrer">program</a> to get a lay of the land and stay up to date with CFI’s <a href="https://www.centerforfinancialinclusion.org/research/consumer-protection">consumer protection</a> workstream.

Understanding the Decision: Consumer Rights and Algorithmic Decision-Making

The past decade has seen an increase in predatory and fraudulent practices in digital finance and fintech. In the last 10 months, there has been an increase in anecdotal evidence that the COVID-19 pandemic has led to a proliferation in the methods and tools predatory and fraudulent providers are using to exploit vulnerable households and businesses (see recent media coverage <a href="https://www.bloombergquint.com/law-and-policy/financial-frauds-have-seen-a-spike-due-to-dependence-on-digital-payment-platforms-ajit-doval" target="_blank" rel="noopener noreferrer">here</a> and <a href="https://www.mediapost.com/publications/article/354201/finance-mobile-apps-most-exposed-to-fraud-gaming.html/" target="_blank" rel="noopener noreferrer">here</a>).

In exploratory work using high-frequency mobile application data for 71 countries, we document the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3588453" target="_blank" rel="noopener noreferrer">increasing scale and scope of these new methods</a>. We observe that some of the most downloaded mobile apps in a number of countries following the outbreak of COVID-19 include finance-related apps that show signs of being either predatory or entirely fraudulent. For example, there is a growth in personal lending apps luring new users to pay nominal service fees to obtain access to cheap loans, but which are revealed to offer no actual service. The release dates of these apps coincide with the onset of COVID and related government lockdowns and are initially buttressed by extremely high ratings driven by tens of thousands of apparently fake reviews. After a duration, some appear to be eventually removed or blocked on the app stores.

For this and other reasons, we categorize these apps as being highly likely instances of fraud. The graph below depicts this after the onset of lockdowns in India, where we saw a wave of lenders fitting these criteria pop up and quickly attract many users. Notably, the adoption of these fraudulent lending apps surpasses that of pre-existing lending apps from known, legitimate providers during this period. We also observe examples of apps set up to mirror legitimate sites (e.g., mimicking existing government or finance apps), but that appear to be designed to phish sensitive information from unsuspecting users. (India is used to illustrate such issues, but similar examples occur in a range of other markets, such as Nigeria, Philippines, etc.)

Combating the Rise in Fraudulent Fintech Apps

Just over one year ago, I joined the Center for Financial Inclusion (CFI), and what a year it has been. <a href="http://financialinclusionweek.org" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> presents a great time for me to reflect on this past year and to share with you CFI’s plans for our next chapter. We are using Financial Inclusion Week to feature the work of so many of our partners. And we are also using the week to focus attention on the themes we have identified in our new strategy as the pillars for this week’s <a href="http://financialinclusionweek.org/event-calendar-2020" target="_blank" rel="noopener noreferrer">calendar of events</a>.

CFI emerged from the rubble of the financial crisis to spearhead the most pressing issue the inclusive finance field needed at the time: improved consumer protection. We are now well into our second decade and our industry is reeling from the ravages of the COVID-19 pandemic. It is perhaps the right time for CFI to reenergize its mandate and spearhead what we believe is needed to “build back better” as the saying goes. As tragic as the pandemic’s consequences have been and continue to be, it has at least laid undeniably bare the failures of the status quo and has created a heightened sense of urgency, for financial services to build back better.

CFI was founded at a particular moment when it was becoming more apparent that market forces alone would not ensure positive outcomes for financial inclusion, and that sustained intentionality would be necessary. The coronavirus pandemic has, at the September 2020 time of writing, infected more than 33 million people and killed nearly 1 million. Beyond the rapid and catastrophic spread of illness and death, the pandemic has devastated global economies. Millions of micro, small, and medium enterprises (MSMEs) around the world have seen revenues plummet and have suspended operations or gone out of business altogether. Hundreds of millions of families have lost jobs and incomes, and many of them live in countries where social safety-net protections are patchy at best. The pandemic also reversed, seemingly overnight, social and economic development gains that had taken decades to achieve: the World Bank estimates that 70 million people are at risk of falling back into poverty. Women and children have been among those most affected: children because schools around the world have been shuttered, and women because they are more likely than men to lose their jobs and to shoulder the responsibility of supervising and homeschooling children.

For CFI, the pandemic has reenergized our purpose. Financial services are critical to reducing low-income populations’ vulnerability and helping them to recover from this and other recurring crises in their lives. We believe we have a leadership role to play in this intensified global effort. We have more than a decade of recognized global leadership in understanding the financial needs and behaviors of low-income vulnerable populations. Complementing this demand-side expertise, our recent <a href="https://content.centerforfinancialinclusion.org/mix-and-cfi-announce-strategic-integration-to-drive-industry-knowledge-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">integration</a> with MIX brings supply-side expertise to the table, as they have been studying and reporting about financial service providers for the past 20 years. These complementary strengths, combined with our history of thought leadership and our role as conveners, positions CFI to pursue an ambitious three-year strategy made all the more urgent in the context of the pandemic.
<blockquote>The pandemic has reenergized our purpose.</blockquote>
The strategic plan which will guide CFI’s work through 2024 focuses on four thematic areas. All of them, to significant degrees, have either been exacerbated by the pandemic or have been revealed by this crisis as urgent and under-attended priorities. The common thread among the themes is that progress in these areas is essential to ensuring that all people have the financial tools needed to improve their lives and to prosper.
<h2>Financial Services to Respond to the Risks of Climate Change</h2>
Just as the pandemic’s effects have been most severe on those who were already the most vulnerable, so too are the effects of climate change. Low- and moderate-income countries (LMICs) in the Global South are likely to experience longer, hotter heat waves and more extreme storms which in turn will create income loss, food insecurity, adverse health effects, and displacement that will hit already-vulnerable LMIC populations hardest.
<blockquote>Financial services are an indispensable tool to help prepare for climate-related shocks and recover.</blockquote>
CFI recognizes that climate change is ultimately an issue requiring long-term systemic changes to entrenched patterns of production and consumption. In the short term, however, financial services are an indispensable tool to help low-income vulnerable people prepare for climate-related shocks and recover from them when they happen. Our work in this theme will focus on understanding what those people need and the constraints they face, uncovering product innovations that can help, and then pilot testing such innovations and scaling-up lessons learned.
<h2>Women’s Financial Inclusion</h2>
Around the world, in many different geographies and socioeconomic contexts, women occupy a “last in, first out” position of vulnerability. The fall-out from the pandemic has made this abundantly clear. Whether it is a workplace where the more recently hired woman is let go before the more senior man, or a financial system that only prioritizes women’s needs when times are good, women’s economic inclusion is seen as a nice-to-have rather than a must-have. Women’s financial inclusion is powerfully shaped by broader societal norms, the unspoken assumptions and values governing men’s and women’s roles. CFI believes that efforts that focus solely on process fixes or product design will not succeed in women’s financial inclusion unless those efforts also seek to transform, rather than merely acknowledge, the underlying norms.

Our work in this area will accordingly include an intensive focus on research into successful norms-transformative initiatives, and how those might be scaled up. We will also work to improve the digital and financial capability of subsegments of women customers, and to influence the policy environment for women’s financial inclusion.
<h2>Data Risks and Opportunities</h2>
The pace of change created by the technology revolution is much faster than law, policy, or social mores can match. Although data privacy and protection regimes have begun to emerge, especially in wealthy countries, data by its nature is universal. To date, there is no universal framework setting forth who even owns personal data, much less governing how it can be used, by whom, and under which circumstances. The COVID-19 pandemic has provided a powerful illustration of both the risks and the opportunities of digitized data. The public health benefits of documenting and following diagnosed COVID-19 cases, and of tracing patients’ contacts, are obvious. But the risks to patients of stigmatizing, discrimination (whether of access to insurance, housing, employment, or otherwise), and other abuses are also very real.

Similarly, in financial services, data is the key that can unlock access to a full range of personalized, effective products that can help low-income people achieve their goals. The risk is that many LMICs have no effective consumer data protection regimes in place and that even where those exist, people with low levels of digital and financial sophistication may, in their eagerness to receive financial services, sign away their rights without even fully understanding them.
<blockquote>CFI will focus on means to bring transparency to data practices in DFS.</blockquote>
CFI’s work in this area will focus on means to bring transparency to the data practices of digital financial service (DFS) providers. We will also study how financial service providers use algorithms, which can be biased against already-underserved populations, in automated decision-making. We will monitor emerging frameworks around the world to document what does and does not work to advance financial inclusion while safeguarding data privacy, portability, and other consumer rights.
<h2>Consumer Protection in the Digital Economy</h2>
As the inclusive finance landscape evolves, so too must the approaches to consumer protection. Social platforms, ecommerce giants, fintechs, and pay-as-you-go providers are all relatively recent entrants into the field, and this means a multi-pronged approach is necessary to ensure safe practices are the norm. This is especially true since many of these business models fall beyond the scope of existing banking regulation. Consumer protection is an evergreen challenge, and one where CFI has long been active.
<blockquote>Consumer protection is an evergreen challenge.</blockquote>
We plan to devote intensive study to the practice of government-to-person (G2P) digital cash transfers, since these are often the on-ramp to digital financial services for low-income populations. We want to understand the risks that digitized G2P transfers present and how governments are mitigating those risks. We also want to document innovations around redress of grievances, financial capability-building add-on services, resolution of connectivity issues, and other relevant lessons learned.

In addition, CFI will partner with regulators and supervisors to test new technologies, such as chatbots or algorithmic audit tools, that can allow supervisors to be in direct dialogue with consumers, without consumer voices being mediated via the financial service providers. Such a dialogue can ultimately improve customers’ experience with financial services and democratize the financial sector by involving customers in the development of financial sector policies. To date, much of the recent work in regulatory technology (RegTech) and supervisory technology (SupTech) has prioritized the data reporting and compliance, but CFI believes its potential for advancing consumer protection has been underappreciated.
<h2>Conclusion</h2>
CFI developed its three-year strategic plan by weighing the needs of the inclusive finance industry against what we see as our own comparative advantages. We recognize that the four thematic priorities we intend to pursue are not an exhaustive list of everything that needs to happen to ensure positive outcomes for low-income people, and we also recognize that other individuals and organizations are doing excellent work in the areas we intend to pursue. We look forward to collaborating with all stakeholders who share the vision of a world where all people are able to equitably participate in the economy and are able to use financial tools to improve their lives and to prosper.

We hope you will participate in the rest of Financial Inclusion Week, which is packed with amazing speakers, events and activities. And, we want to hear from you. Please participate and tell us what you think about CFI’s thematic priorities.

Reflecting on the Past and Charting a New Direction

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

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

As more people are connecting to more financial services digitally, we’re seeing growing calls for individuals to have greater control over how their data is being used and by whom. At the heart of consumers’ ability to control their data is the notion of consent, but what consent means in practice can vary considerably and can often be difficult for providers to ascertain in a meaningful way from a consumer standpoint.

In the EU, the GDPR has <a href="https://gdpr.eu/gdpr-consent-requirements/">defined consent</a> as being free, informed, specific and unambiguous. It also necessitates an opt-out option for data subjects, allowing for the partial or complete withdrawal of any previously given consent, and for the removal of all gathered personal data. But while these requirements may be good for consumers, they’re also tough for providers to implement. Just ask Google, which was <a href="https://www.reuters.com/article/us-google-privacy-france/france-fines-google-57-million-for-european-privacy-rule-breach-idUSKCN1PF208">fined 50 million euros</a> last year after the French data protection authority concluded that it “lacked transparency and clarity in the way it informs users about its handling of personal data and failed to properly obtain their consent for personalized ads.”
<h2>Flexibility Needed for Smaller Providers</h2>
So, if a tech giant, operating in Europe with all the resources and expertise at their disposal, can run afoul of these new consent requirements, does it make sense for governments in developing countries to try to adopt similar rules? India’s response for now has been yes. The current version of its pending data protection bill incorporates the same consent principles as GDPR. However, one legal observer we spoke to expressed concerns that the bill says nothing about what this consent architecture will look like and the ways in which consent will be sought. For smaller providers like microfinance institutions, fintechs and small finance banks that are trying to reach underserved segments with higher levels of illiteracy, obtaining consent as currently defined in the bill would pose a significant challenge, as elaborated below. Moreover, providers leveraging digital technologies to serve customers who might not be that digitally literate or understand the ways their data can be used may find it nearly impossible to meet such high standards of consent. The likes of Google might be able to figure it out over time, but smaller providers would need more flexible rules and support to comply.
<blockquote>Google might be able to figure out high-standard consent, but smaller providers would need more flexible rules and support.</blockquote>
For further evidence on how providers are already coming up short on consent, a recent <a href="http://documents.worldbank.org/curated/en/677281542207403561/Financial-Consumer-Protection-and-New-Forms-of-Data-Processing-Beyond-Credit-Reporting">World Bank report on new forms of data processing</a> laid out many limitations of practices around consent, such as lengthy and complex consent forms, incomplete information, and standardized, inflexible terms offered on a “take it or leave it” basis. As a result, providers are often seen to be doing the bare minimum to comply with existing data protection requirements. In recounting the deficiencies identified in a study by the Centre for Internet and Society on fintech privacy policies in India, a <a href="https://cis-india.org/internet-governance/blog/the-wire-shweta-mohandas-july-30-2019-in-india-privacy-policies-of-fintech-companies-pay-lip-service-to-user-rights">recent article</a> noted that one rule “requires a fintech company to provide an option to withdraw consent. Twenty-three percent of the companies allowed the user to opt out or withdraw from certain services such as mailing list, direct marketing and in app public forums, but they did not allow the user to withdraw their consent completely.” Such findings have led various observers to rightly question <a href="https://www.cgap.org/blog/data-protection-and-financial-inclusion-why-consent-not-enough">how effective consent really is</a> in practice and to propose <a href="https://www.cgap.org/research/publication/making-data-work-poor">other approaches</a> to give consumers more meaningful control over their data.
<h2>The Futility of Trying to Keep Up with New Approaches to Consent</h2>
This all stands to reason, but it again begs the question as to how providers who are already having a hard time complying at a minimal level could ever keep up with these new approaches. Indeed, in discussing the variety of data protection principles and standards that already exist around the world, the previously mentioned World Bank report also hastened to point out that “such principles may often be difficult to implement, particularly in low-capacity environments and/or where changes in the financial sector are fast paced.” As our interviewees attested, low-capacity environments and fast-paced changes are very much the rule, not the exception, and the path from principles to implementation is littered with landmines.
<blockquote>Low-capacity environments and fast-paced changes are very much the rule, not the exception.</blockquote>
One case we encountered centered around the issue of informed consent. Last year, the Reserve Bank of India <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-slaps-rs-5-crore-penalty-on-airtel-payments-bank-for-violation-of-norms/articleshow/63235308.cms">fined Airtel Payments Bank</a> the equivalent of roughly $700,000 for “contravening the Operating Guidelines for Payments Banks and directions issued by RBI on Know Your Customer (KYC) norms.” Airtel Payments Bank is majority owned by Bharti Airtel, one of the largest mobile operators in India, and in 2017 complaints started to emerge among mobile subscribers that Airtel Payments Bank had opened new bank accounts without their consent. According to <a href="https://www.financialexpress.com/economy/uidai-airtel-payments-bank-case-company-claims-no-wrongdoing-heres-how-you-can-avoid-the-trap/979401/">reports</a>, when new Airtel mobile subscribers first opened their Airtel mobile app, a pre-ticked consent box would appear on the welcome screen which, unless unchecked, would authorize the use of the same <a href="https://uidai.gov.in/what-is-aadhaar.html">Aadhaar</a>-based eKYC verification required to open the mobile account to also open an Airtel Payments Bank account. Over 2.3 million customers reportedly had new bank accounts created that they did not realize had been opened. Further complicating the matter was the fact that government subsidies would automatically be sent as direct benefit transfers to each beneficiary’s most recent Aadhaar-linked bank account, resulting in the equivalent of about $6.6 million in subsidies being deposited into these accounts. Airtel Payments Bank maintained that it had properly obtained consent to open these accounts but committed to working with the government to ensure compliance. We spoke with Akhil Verma, the current Chief Information Security Officer of Airtel Payments Bank, and he said the bank’s failure to notify customers of this caveat and obtain their explicit permission before allowing this was considered grounds for insufficient consent.
<h2>Out of Step With Modern Digital Reality</h2>
Another concern we heard from the other side of the globe was that some consent requirements are out of step with modern realities. According to Mariano Fuentes, Legal Advisor with ASBANC, the banking association in Peru, its data protection law (which was originally passed in 2011) is outdated for the digital times we now live in and does not do a thorough job of clarifying the ways consent can be obtained. Banks in Peru can obtain consent for personal data digitally, but “sensitive” personal data, which not only includes data on things like race or health, but also biometric data and data pertaining to “personal habits” that could come from things like mobile phone usage patterns, still requires written consent. Since Peru’s data protection law was passed in 2011, it would not have been able to fully anticipate the ways in which people’s lives have been digitized and the new types of data that would emerge, so it’s not surprising that it was reported last June that the National Authority for the Protection of Personal Data in Peru had issued <a href="https://elcomercio.pe/economia/negocios/tres-anos-han-puesto-1-246-sanciones-faltas-proteger-datos-noticia-646513-noticia/">1,246 sanctions within three years</a> (across all sectors).  A scan of the sanctions imposed by the data protection authority also reveals that a significant share of these violations resulted from failures to properly obtain consent.

Whether these cases amount to violations is often a matter of interpretation. Mariano Fuentes of ASBANC underscored this by pointing out that five member banks are currently appealing their penalties because they disagree with the arguments made by the data protection authority. “The complete idea of consent is not represented by any technology, which is damaging in today’s times and is used against us to levy sanctions,” he added. Despite these challenges, Peru consistently ranks as one of the top country-wide regulatory environments for financial inclusion in the Economist Intelligence Unit’s <a href="https://www.centerforfinancialinclusion.org/global-microscope-2019">Global Microscope</a> assessment. In the 2019 version, it came in second partly because it “showed the greatest improvement in the consumer protection domain—specifically, for its data protection framework for financial customers.”
<h2>So How Are Consumers Supposed to Understand?</h2>
Given all the shortcomings with current consent practices around the world, it’s simply unfair to expect consumers to be able to fully understand what can and cannot happen with their data right at the point when they are about to access a new service or download an app. But at the same time, placing the burden on providers, especially those that are on the frontlines of underserved areas, to understand and apply high standards of consent is also proving to be a challenge. The reality is that this is a burden that both consumers and providers need to share, but not on their own. They need the right mix of policy and technology to help them get there. There are some emerging regulatory technology – or “regtech” – solutions providers in developed markets (like <a href="https://www.trunomi.com/">Trunomi</a>) that enable consent-based data sharing, for example.
<blockquote>This is a burden that both consumers and providers need to share, but not on their own.</blockquote>
As these solutions continue to advance, perhaps governments in developing countries could seek to attract such providers to adapt these solutions for their markets. It’s this type of innovation and collaboration that is needed to make consent work. The burden should be broadly shared.

Data Consent: Let’s Share the Burden for Effective Consumer Protection

All is not well in the country that pioneered mobile credit. A new <a href="/making-digital-credit-truly-responsible">report on digital credit in Kenya</a> from <a href="https://www.microsave.net/">MSC</a>, commissioned by <a href="/about/what-we-do/the-smart-campaign">the Smart Campaign</a> and the <a href="https://sptf.info/">SPTF</a>, shows that with continued dramatic growth rates, the sector also experiences cripplingly high default and delinquency, enabled by poor business practices and weaknesses in both the credit reporting infrastructure and regulatory jurisdiction.

Most notably, the report reveals very high rates of delinquency and default. Among active digital loans, more than a quarter are non-performing. About 2.2 million Kenyans are said to have delinquent loans. In some cases, liberal use of refinancing and rescheduling hides this level of delinquency in lender portfolios. At the same time, the report points out that about half of these non-performing loans are for amounts less than $10. These findings are broadly consistent with results cited by CGAP in 2016, which found that 50 percent of digital borrowers in Kenya repaid their loans late, and 12 percent defaulted.
<blockquote>Despite continued growth of digital credit in Kenya, high delinquency, default and interest rates persist in the market and credit bureaus haven't yet caught up with the digital age.</blockquote>
The report also details shortcomings in credit reporting, given that many digital lenders neither consult nor report to the credit reporting bureau as fully or regularly as they should. The credit reporting bureaus were clearly set up for a pre-mobile era, which suffer from issues related to inclusion of all types of lenders, frequency of uploading data (monthly, when daily is more relevant for today’s short term loans), and ease of connection among all the players in the credit reporting ecosystem. As a result, many lenders are not consistently using credit bureaus—neither ensuring that the information is updated and correct, nor fully consulting it prior to lending.

Pricing is also an issue. The market leader, M-Shwari, which accounts for about two-thirds of all digital loans, charges an annual percentage rate (APR) of 90 percent. The low-price option provided by Kenya Commercial Bank is a fairly reasonable 44 percent APR, but the high end of the price range includes providers charging APRs well into the hundreds. Granted that these are small, short term loans where interest payments are not expected to be sustained for an entire year. Nevertheless, the promise of digital to bring down prices does is not yet in sight.

Other issues noted in the report include non-transparency regarding portfolio quality, identity theft, misuse of client data, multiple borrowing and loan bicycling by clients, and client use of loan proceeds for sports betting.

The picture that emerges suggests that the still-exploding market of very small, “nano” loans needs to be brought into more orderly operation. Consumers and providers are operating in risky ways. The current state of the market is not beneficial for either.
<blockquote>Raising the bar for blacklisting customers and public awareness about defaulting on loans are among our recommendations for improving digital credit.</blockquote>
One issue specific to this nano-loan market concerns the reporting of very small non-performing loans to credit bureaus, with negative consequences, such as curtailing of access to credit, for hundreds of thousands of borrowers. MSC, the Smart Campaign and SPTF recommend that regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau (whether US$2, $5 or $10 – the report actually recommends a cutoff of 5% of the monthly per capita GDP). It also recommends that the government launch a public awareness campaign about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

The regulators, credit reporting agencies and lenders in Kenya are aware of these concerns and working to improve the situation. A new association of digital lenders (Digital Lenders Association of Kenya) has been formed to create consumer protection standards and the central bank is exploring ways to upgrade the credit reporting ecosystem. The Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Kenya’s unprecedented dynamism in mobile money, digital credit and financial inclusion is envied across the world. If authorities and providers can bring the participants in these sectors into a better-functioning marketplace, Kenya will benefit greatly from the innovation the country continues to spawn.

Red Flags in Kenya’s Nano-Credit Market

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At Accion, we know financial services are powerful tools to help reduce poverty and create opportunity. We work to create a fair and inclusive economy where underserved people have quality financial choices and opportunities. And in our recently published <a href="https://www.accion.org/2022-impact-report" target="_blank" rel="noopener noreferrer">Impact Report</a>, we dive into how we translate our vision into action — and impact.

We support innovative companies. We create responsible digital financial solutions. And we conduct rigorous research toward building a fair and inclusive economy for underserved people globally. Since our founding in 1961, we have helped build 235 financial institutions across 75 countries, and our work reached 106 million people <a href="https://www.accion.org/2022-annual-report/" target="_blank" rel="noopener noreferrer">last year, </a>helping them secure a brighter future.

That’s only a snapshot of our impact. To understand exactly how our work is making a difference in people’s lives — and how to maximize our impact — we systematically gather feedback from our partners and their clients so we can quickly learn what is and isn’t working, and share and promote best practices across our global networks.

By doing so, we’re able to learn and respond quickly to insights as they arise, which is key to equipping the people we serve — who are largely small business owners, smallholder farmers, and women — with financial tools that answer their unique needs and enable them to make better financial decisions. We also advocate for progress across the field of inclusive finance to elevate responsible impact measurement and customer-oriented solutions everywhere.
<h3>To understand impact, listen to clients</h3>
For a clearer picture of our impact, we need to listen to clients. This means looking beyond their ability to access new financial solutions and learning more about how they are using new tools to improve their lives. For example, are they saving money for the future? Are they able to respond to unexpected emergencies? Are they investing in and growing their businesses?

We integrated these questions into our first four-year partnership with Mastercard, which drove the digital transformation of small businesses and their financial service providers around the world. <a href="https://www.accion.org/the-impact-of-digital-transformation-on-underserved-microbusinesses-findings-from-accions-partnership-with-mastercard" target="_blank" rel="noopener noreferrer">Our impact research</a> showed 5.6 million microentrepreneurs started using new digital financial products on a regular basis. Critically, rates of 30-day usage increased by roughly four times the initial rate, showing how clients are making good use of new digital financial tools. Three-quarters of digital product users are women, and nearly 80 percent of users reported improved financial health thanks to digital solutions. This means being able to pay bills on time, having access to funds when they need them, and strengthening their finances against economic shocks.

To further center client voices, we became a founding partner of <a href="https://60decibels.com/insights/microfinance-index/" target="_blank" rel="noopener noreferrer">a new index</a>, released last year, which shows the impact of inclusive financial services on customers around the world. Created by the firm 60 Decibels, the index includes data from more than 18,000 customers from 72 microfinance institutions globally, many of them Accion partners.
<h3>Promoting transparency and standards across the industry</h3>
According to <a href="https://thegiin.org/assets/documents/pub/2023-GIINsight/2023%20GIINsight%20%E2%80%93%20Impact%20Measurement%20and%20Management%20Practice.pdf" target="_blank" rel="noopener noreferrer">a recent report</a> by the Global Impact Investing Network, 94 percent of surveyed impact investors assess their impact at least once per year, and 76 percent are aligning their impact priorities with the UN’s Sustainable Development Goals. But only 15 percent of impact investors can compare their impact results to peers, and 76 percent consider this a major challenge.

In short, we need better, more transparent, more universal standards. And as more companies orient toward impact, they must back up their claims with evidence and align their impact reporting with common practices and metrics.

To promote progress across the field, Accion recently signed up to the <a href="https://www.impactprinciples.org/" target="_blank" rel="noopener noreferrer">Operating Principles for Impact Management</a>, joining a global community of impact investors who commit to bringing greater transparency, credibility, and discipline to the impact investing market.

We are also harmonizing our impact measurement practices and priorities with those of our partners. This helps ensure that our diverse network of partners around the world are doing their best to periodically evaluate the quality and effectiveness of their solutions for their clients and their communities.

You can read more about Accion’s impact framework, our legacy of impact, and our ongoing commitment to creating locally led, systemic change in our just-released <a href="https://www.accion.org/2022-impact-report" target="_blank" rel="noopener noreferrer">2022 Impact Report</a>.

Strengthening our impact requires rigorous measurement

<h2>At Accion, we know financial services are powerful tools to help reduce poverty and create opportunity.</h2>
Since our founding in 1961, we have helped build 235 financial institutions across 75 countries. Last year, our work to create a more fair and inclusive economy reached 106 million people. And in our recently published <a href="https://content.accion.org/wp-content/uploads/2023/09/Accion-2022-Impact-Report.pdf" target="_blank" rel="noopener noreferrer">Impact Report</a>, we dive into how we translate our vision into action — and impact.

<a href="https://content.accion.org/wp-content/uploads/2023/09/Accion-2022-Impact-Report.pdf" target="_blank" rel="noopener noreferrer">Download our report</a> to read more about Accion’s impact framework, our legacy of impact, and our ongoing commitment to creating locally led, systemic change.

2022 Impact Report

[embed]https://youtu.be/kH_NBo3jQ4c[/embed]

“Our graduates from our program make more than four times income, on average. So that's a huge increase after six months of education,” says Martin Borchardt, Founder &amp; CEO of Henry, a fintech that's cultivating tech talent in Latin America. Their coding courses leverage remote learning and an innovative financing structure to make technical education accessible. Once a student completes the coursework, Henry helps them secure a job in the technology sector.

Read <a href="/a-fintech-cultivates-tech-talent-in-latin-america" target="_blank" rel="noopener noreferrer">why Accion Venture Lab invested</a> and learn more about Henry on our <a href="https://www.accion.org/creating-a-more-equal-world-through-technology-training-luz-borchardt-henry" target="_blank" rel="noopener noreferrer">Fintech for the People podcast</a>.

Inclusive fintech leader stories: Martin Borchardt, Founder & CEO of Henry

The pandemic has severely affected the world’s low-income populations. But by accelerating the pace of digitization, it has opened doors to financial services and the security and opportunities they provide. Digital financial services—and the tools needed to use them—are now vital for low-income families and small businesses to make it through this crisis and build resilience to future challenges.

Digitization is integrating financial services into nearly every aspect of life. <a href="https://www.accion.org/what-does-embedded-inclusive-fintech-look-like">Financial services can be embedded</a> into anything from utility payments to crop fertilizer subscriptions, which can help more people access credit, save money, and build credit histories that are essential for growth.

But digitization also risks worsening inequality, invading clients’ privacy, and taking advantage of people with less digital experience or poor access to the right tools, like mobile phones. Underserved people need new skills and expertise to successfully navigate the digital economy, and they need products that protect their privacy and personal information.

Accion has been working to ensure that innovations driving digital transformation and migration are inclusive, safe, and effective. Based on our experiences, here are three ways to ensure customers aren’t left behind amid accelerating digitization.
<h2>1. Expand digital access, fluency, and trust</h2>
Building customers’ trust in digital financial services, as well as their digital fluency, will be foundational an effective customer experience. It matters less where clients live, while it’s more important that providers can reach and stay in contact with them. Financial services providers need to rethink the purposes of physical interactions versus digital interactions so that the former occur less often and the latter become more frequent and more personal.

EdTech (education technology) can help underserved clients gain digital familiarity and learn how to accomplish a range of tasks, like setting up an online wallet or listing a product for sale. Accion has <a href="https://www.accion.org/how-the-pandemic-is-spurring-microentrepreneurs-to-go-digital">developed and deployed an interactive EdTech platform</a> called Ovante to help underserved entrepreneurs gain the management, financial, and digital expertise they need to succeed in our increasingly digital world. Ovante can help clients expand on their existing knowledge of social media to open new digital channels to selling their products and services.

Digital channels are a key conduit for financial service providers to improve their customer experience, and sometimes this means totally rethinking the customer experience. For example, many of Accion’s partners use group lending models to serve clients without any credit history by allowing people in the same communities to guarantee each other. Eighty percent of group lending participants are women, and 65 percent live in rural areas with few or no banks. Group lending has historically relied on frequent in-person interactions. But as social distancing became a necessity, our partners leveraged digital platforms to <a href="https://www.accion.org/can-group-lending-work-in-a-socially-distant-world">reimagine the group lending process</a> for the digital age.
<h2>2. Answer clients’ needs</h2>
As lockdowns end, low-income families will find their savings exhausted, their businesses stalled or bankrupt, and their future incomes uncertain. People will need new income streams and financial services to build resilience, restart their businesses, and establish new ventures.

Digitization means that more clients will use digital tools to rebuild their livelihoods, but providers must answer their needs by <a href="https://www.accion.org/to-succeed-innovative-financial-products-must-be-desirable-feasible-and-viable">crafting truly meaningful, customer-centric value propositions</a> that help them build resilience today and for the future.

To do that successfully during the pandemic, Accion has helped providers conduct interviews and surveys remotely to ensure that they capture the insights they need. Using client insights, we help institutions develop products and services that are desirable to clients and solve their specific problems. These offerings must also be feasible for the institution, given their capacity and operating models, and viable for the long term. Here, digital channels and platforms make a huge difference, and adopting them has become an urgent priority.

It’s so important to help people build financial resilience, and the customer experience needs to reflect that. If vulnerable clients’ unique needs aren’t sought out, understood, and addressed, their entire livelihoods could collapse and the economic recovery will be more difficult. Financial service providers must <a href="https://www.accion.org/win-from-within-how-fintech-startups-can-grow-by-building-value-for-existing-users">grow along with their clients</a> by understanding their needs, crafting products that meet those needs, and keeping them engaged throughout their journey as customers.
<h2>3. Ensure clients’ data and privacy stay protected</h2>
Digitized data can unlock more personalized and effective financial products that can help low-income people improve their lives and achieve their goals. Yet many emerging markets have weak effective consumer data protection regimes. When rules do exist, people with low levels of digital and financial sophistication may, in their eagerness to receive financial services, sign away their rights without even fully understanding them.

Protecting the privacy and security of customer data includes cultural and technical aspects, and vulnerabilities often lie at the intersection of the two. A provider can install best-in-class privacy and security software, but they must also build in privacy through a culture of protecting customer data. For example, providers can ‘right size’ their data collection methods to focus only on what is needed, implement strong and ethical data governance policies, and have dedicated staff responsible for their consistent application and use.

Accion is also focused on increasing transparency in providers’ data practices. We are analyzing how financial service providers use algorithms, which can be biased against underserved populations, in automated decision-making. We are monitoring emerging frameworks around the world to see what does and doesn’t work to advance financial inclusion while safeguarding data privacy, portability, and other consumer rights.

Cyber threats have also become a growing concern in emerging markets. Digital innovations, new products, and new processes are moving ahead at breakneck speed, but they’re leaving cyber security considerations in the dust, bringing new risks to financial inclusion-focused providers and to low-income and newly-banked customers. This makes it harder for people to trust digital financial services. We are working with our partners to <a href="https://www.accion.org/reimagining-cyber-risk-for-financial-inclusion-in-an-increasingly-digital-world">put in place cyber risk mitigation strategies</a> to ensure that the most underserved are protected.

Accion is engaging the industry to ensure that innovation doesn’t simply expand access to financial services—but also creates financial services that are safe, high quality, and designed to meet customers’ needs. These efforts are essential to ensure that the world’s three billion financially underserved people can build resilience to today’s challenges and threats arising in the future.

Three ways to ensure people aren’t left behind in the rush to go digital

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.

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"The pandemic has been a great learning experience for us and an opportunity to be even closer to our customers in a moment of crisis," says Ann Williams, COO of Creditas, a digital platform that offers financial products and consumer solutions in Brazil and Mexico. The company began by offering asset-backed loans to provide "lower interest rates, longer terms, and lower payments that can fit into the pocket of our customers". In the tenth and final episode of VentureKast: Rebuild, Ann explains how the fully digital company has reached out to their customers — especially small business owners who have been deeply affected by the COVID-19 crisis — to restructure loans and create new products that address their challenges.

"Brazil has one of the highest interest rates in the world for consumer loans and the banks are some of the most profitable in the world," says Ann, who elaborates that their high-cost structures and focus on shorter-term, "toxic" debt have created a need for better, cheaper loans. "There’s been a push among fintechs like Creditas, along with central bank and policymakers, looking to create opportunities for consumers to access more fair financial products," she says. By leveraging a digital platform, Creditas can give customers more information and more opportunities, even during this challenging time. Ann reminds us that "it’s always the moment to work to build something better for the underserved," and she asserts that Creditas’ resolve to enrich the relationships with their customers is as strong as ever.

For more conversations about how the pandemic is shaping our industry, listen to the rest of our <a href="https://www.accion.org/series/venturekast-rebuild">VentureKast: Rebuild season here</a>. Host and co-managing director of  <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab" target="_blank" rel="noopener noreferrer">Venture Lab</a>, <a href="https://www.accion.org/bio/vikas-raj" target="_blank" rel="noopener noreferrer">Vikas Raj</a> interviewed industry leaders every Thursday for the last 10 weeks about how COVID-19 has impacted their work.

"The pandemic is a moment to get in touch" — Creditas’ Ann Williams

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.

As the global coronavirus pandemic threatens the livelihoods of millions around the world, our mission to give people the financial tools they need is more urgent than ever. The populations we serve are particularly vulnerable right now, without access to affordable healthcare, savings, or loans to stay solvent in a crisis. As the whole world faces this challenge, we have an opportunity to learn from each other and improve how we offer inclusive financial services to those who need them. We’re committed to sharing the knowledge we have to help our global community remain resilient.

While we aggregate and <a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers">share resources</a> across the globe, we’ve been working closely with two of our partners in China, <a href="http://grassfin.com/#/" target="_blank" rel="noopener noreferrer">Grassland Finance Limited</a> and <a href="https://www.cdfinance.com.cn/en/index" target="_blank" rel="noopener noreferrer">CD Finance</a>, and learning from their experience. Before the coronavirus pandemic spread across the globe, it hit China, devastating some areas and creating challenges for small businesses everywhere. After a two-month nationwide lockdown to contain the virus, businesses have reopened across China. Though China is very unique in many aspects, as other nations are facing this same contagion, we can learn from China’s experience.

We recently hosted a webinar for our partners with Ms. Hooi Koon Seah, COO of Grassland Finance Limited, and Mr. Dongwen Liu, CEO of CD Finance, and they shared their top lessons learned from navigating this crisis:
<h2>Protect the wellbeing of staff and clients</h2>
Above all else, prioritize the safety of employees and clients. By taking the virus seriously and taking immediate action, organizations can protect both their business and their clients. Institutions must comply with all official quarantine requirements and health protocols to protect employees and customers. Grassland and CD Finance adjusted their budgets as needed to increase the number of protective masks and cleaning supplies available to staff in regions that were hit harder by the virus. “Most of all, we want our staff to know that they belong and that the company holds their wellbeing as the highest priority,” said Ms. Seah.
<h2>Communication is critical</h2>
While in-person contact is restricted, maintaining a close connection with employees through other communication channels ensures that they feel secure and supported. Good communication channels should be in place for both employees and clients to stay connected while working remotely. In China, the top digital communication platforms were already widely adopted and became critical for both employees and clients to stay in touch. Our partners in China found that using these existing platforms helped them stay connected to clients. Mr. Liu notes, “It’s really important for our clients to recover their business in the coming days. What we can do is to have a close connection with them and ask what kind of support we can give to them and help them to recover their abilities gradually.”
<h2>Develop and execute emergency plans immediately</h2>
Companies need to identify possible worst-case situations and determine how they will respond. Now is the time for the financial services industry to take this crisis seriously and make every effort to support their staff and clients. The crisis moves fast, and its effects are far-reaching. By being prepared in advance and unafraid to act quickly and boldly, financial service providers can help their customers stay afloat through an unprecedented challenge.
<h2>Evaluate risk by sector and develop segment-specific response plans</h2>
Due to dramatically reduced cash flow during and after the lockdown, overdue loan payments increased greatly. Grassland learned in an impact assessment conducted with support from Accion that the crisis hit certain sectors harder than others and required a differentiated strategy for each. Depending on the sector and market, Grassland Finance prolonged the payment period, granted additional loans, or deferred loan repayments.

The agricultural sector faced unique challenges during the lockdown, which occurred during the planting season. Farmers faced challenges in securing the agricultural inputs they needed, like fertilizers. CD Finance was able to disburse $5 million USD in loans for farmers to buy fertilizers through a partnership with an agricultural inputs company.
<h2>Focus on building digital capacity</h2>
As this crisis unfolded, China had several factors working in its favor for business to continue. Digital payment and e-commerce platforms like WeChat Pay and Alipay are widely adopted, reducing the need for cash. With good infrastructure in place, including electricity, telecommunications networks, and internet access, many employees were already equipped to work remotely.

During the national lockdown, loan officers were unable to visit clients, and clients were unable to visit banks. Mobile communications and digital payment options were critical. Educating customers about digital payment platforms reduces dependence on cash. CD Finance relied on their existing digital platform to manage payments. Based on previous loan history and credit assessments, they were able to make quick determinations on whether or not to offer credit and loan extensions through this digital channel.

Every market will face unique difficulties and China has some aspects that enable it to act faster and more effectively than other countries. Yet, these insights can help as financial service providers guide their clients through this hard time. As we continue to face daunting challenges, know that there will be a time for recovery. “Although the disaster remains a serious challenge for both financial institutions and small businesses, we should stay remain optimistic. We believe that things are slowly getting better in China, and it will be in the rest of the world as well. This can be an opportunity where we show our worth and commitment to our mission,” says Ms. Seah. We know that Accion’s mission is more urgent than ever, and we will continue to share as many resources as we can to help underserved populations to endure the pandemic.

<a href="https://www.accion.org/responding-to-the-pandemic-guidance-for-financial-service-providers">View Accion's recommendations for financial service providers on protecting customers, employees, and business operations during the COVID-19 pandemic.</a>

&nbsp;

Five crucial insights from China for facing the pandemic

“Everything is based on technology,” says Camila Valdés who serves as the chief data officer for Accion partner <a href="https://www.destacame.cl/">Destacame</a>. The online platform enables users in Chile and Mexico to manage their financial lives, access free digital financial health tools, and see appropriate financial service offerings. From back-end development to the way users engage with the platform, innovative technology enables Destacame to understand and serve its customers better, and it will continue to be crucial as the fintech startup grows.

[caption id="attachment_17142" align="alignleft" width="500"]<img class=" wp-image-17142" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day1__0352-1024x768.jpg" alt="Destacame employee Nel Pérez" width="500" height="375" /> “Technology used in the proper way can make a huge difference in people’s lives,” says Nel Pérez.[/caption]

Nel Pérez is Destacame’s chief technology officer, and he’s the perfect person for this job. Even as a child, Nel was tech-obsessed, focused on learning everything he could about computers and programming. “It was love at first sight with technology,” he says. Despite his abiding infatuation, he emphasizes that his role is not about employing technology for technology’s sake — it has to have a purpose: “It’s not about the technology — it’s about the needs we have that technology can help solve.” Internally, this means leveraging data analytics, cloud storage, and other solutions to keep all of Destacame’s processes running smoothly.

Technology is also the vehicle Destacame uses to connect with its users externally since they can access the service from their own computers or mobile devices, wherever they are. This ability to interact with users regardless of distance is crucial for Destacame’s mission and growth. “Technology allows us to have more of a range, so we can reach the community, whereas before it was impossible because it was not cost-effective. It also allows you to attend to each person’s needs individually. So it’s a service that suits everyone,” says Camila.

[caption id="attachment_17156" align="alignright" width="501"]<img class=" wp-image-17156" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day1__0909-1024x682.jpg" alt="Destacame employee Virginia Chacón " width="501" height="334" /> Virginia Chacón discusses how Destacame builds customer relationships using technology[/caption]

And technology’s not just useful for reaching new users — it also assists Destacame in building existing customer relationships. “It helps us have a very close relationship with users,” says Virginia Chacón, Destacame’s head of operations. “We can even use Whatsapp to contact our users.” Staying in touch digitally helps Destacame provide customer service and make sure users can all receive the right messages at the right time to take advantage of credit-building opportunities, access services, and build their financial health.

As Destacame continues to grow, the fintech startup is finding even more ways to leverage technology to improve its platform, and José Luis Birrer, Destacame’s product manager in Chile, helps guide that process. Unlike his colleague Nel, José Luis never planned to work in technology, but after interning at a tech company, he found a sense of purpose in the work: “Technology allows people to use data in a better way — better products and better access to services.” He designs new products and implements improvements for existing ones with two factors in mind: first, solving users’ problems, and second, making sure it’s profitable so that Destacame can continue to scale and reach more customers. To inform its development, Destacame analyzes data to understand its users better and build products that meet their needs. “It’s about getting to know our clients so we can see what they need and how we can help fulfill those needs,” says José.

[caption id="attachment_17148" align="alignleft" width="500"]<img class=" wp-image-17148" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Destacame_Day1__0516-1024x682.jpg" alt="José Luis Birrer, Destacame’s program manager in Chile" width="500" height="333" /> José Luis Birrer, Destacame’s program manager in Chile[/caption]

To help fulfill customers’ needs, Destacame is <a href="https://www.accion.org/achieving-financial-health-in-mexico-and-chile/">currently working with our Global Advisory Solutions team</a> on providing even more robust services. The project, supported by MetLife Foundation, will expand Destacame’s platform to include a financial health dashboard that clearly assesses users’ financial health and sets a roadmap to help them achieve their long-term plans. The platform will also recommend additional products, services, and tools for paying down debt, starting a business, saving for school, and more — these recommendations will evolve along with each user’s financial situation, helping them to take the right steps at the right time to live a financially healthy life.

“Technology used properly can make a huge difference in people’s lives,” says Nel, summing up why technology is so crucial for Destcame’s mission. By always putting users’ needs at the center and emphasizing financial capability-building, Destacame is making the most of technology and setting an example of how inclusive fintech can improve lives.

&nbsp;

Fintech fuels inclusive growth for Destacame

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.

New Delhi, India, September 26, 2018—Sa-Dhan and the Smart Campaign announced the launch of an online monitoring tool at the Sa-Dhan National Conference 2018, that allows Sa-Dhan to monitor consumer protection and over-indebtedness risk among its nearly 200 members, benefiting more than 30 million clients in India. The tool is a result of a collaboration between Sa-Dhan, the Smart Campaign, and Accion, and was developed with the financial and technical support of the International Finance Corporation (IFC). IFC is a part of the World Bank Group and is the world’s largest development finance institution focused on the private sector in emerging markets, in particular the microfinance industry. Over the years, IFC has focused on introducing best practices in consumer protection and the Monitoring Tool is aimed at enabling greater transparency in the Indian microfinance sector.

Sa-Dhan, the oldest and largest association of community development finance institutions in India, works with a mission to support and strengthen financial inclusion in India by helping its member institutions best serve low-income households. Since February 2015, Sa-Dhan has been recognized as a Self-Regulatory Organization (SRO) by the Reserve Bank of India (RBI) and has been entrusted with the responsibility of monitoring and surveillance of the NBFC-MFIs by formulating and administrating self-regulation, client protection and grievance redressal mechanisms, performance standards, compliance with regulations and Code of Conduct in the best interest of the clients.

To maintain high ethics and standards of the industry, Sa-Dhan worked with the Smart Campaign – the leading industry voice on financial consumer protection housed at the Center for Financial Inclusion at Accion – to create a monitoring tool for consumer protection that is based on the Campaign’s global best practices for financial consumer protection, India’s microfinance industry Code of Conduct, and guidelines from the RBI. The IFC provided technical and financial support. <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions/">Accion Global Advisory Solutions</a> – the advisory team at global nonprofit Accion that works to maximize providers’ impact on financial inclusion – led the digitization of the tool and the building of the data warehouse, business intelligence tools, and web platform. This digital interface will allow Sa-Dhan’s members to efficiently self-report data, and provide Sa-Dhan with the ability to access powerful dashboard reports to assess market-level dynamics, especially focused on identifying areas of over-indebtedness risk.

True to its tenet, IFC has been supportive in assisting to create the tool. Speaking about the launch of the Monitoring Tool, Paramita Dasgupta, Practice Manager – South Asia, Finance, Competitiveness &amp; Innovation Global Practice – World Bank Group, said, “As part of IFC’s Responsible Finance Sectoral Program, we promote  investments in innovative products that improve access to finance, especially for the unbanked. This tool will enhance responsible microfinancing, strengthen Sa-Dhan’s SRO functions, aid in consumer protection and also help to create a conducive atmosphere for growth of the sector in India.”

According to P. Satish, Executive Director, Sa-Dhan, “We are delighted to launch this unique SRO tool for the benefit of the sector, with the guidance of IFC and the Smart Campaign. This will help our member MFIs with their data analytics and compliance measures, as well as reduce potential client distress. We are hopeful that this tool will not only usher in a new era for responsible growth of the industry in India but will go on to become a global best practice for sector.”

The Monitoring Tool was launched during the session, “Building a Culture of Responsible Lending,” which was attended by around 600 industry leaders including bankers, microfinance institutions (MFIs), regulators and policymakers. Sa-Dhan will take the tool across the country and hold workshops for members MFIs. The tool will be put into practice through field validation, and reports generated from the monitoring system will be shared with RBI and used by Sa-Dhan to raise red/yellow flags on saturated markets and as early warning to institutions that are potential risk of non-compliance to the Code of Conduct. Also from the generated reports, lenders will be able to identify under-penetrated districts to expand their services. This report will benefit all stakeholders of the sector like lenders and policymakers to promote responsible finance.

The Smart Campaign works globally to create an environment in which financial services are delivered safely and responsibly to low-income clients by maintaining a rigorous certification program, elevating the client voice and convening partners to effect change at the national level. The collaboration between the Smart Campaign and Sa-Dhan can serve as a model for implementing consumer protection standards with market-level reach.

“The online monitoring tool marks a milestone in ensuring that clients are protected,” said Isabelle Barrès, Director of the Smart Campaign. “Monitoring the risks at the market level will allow Sa-Dhan to take the pulse of the industry and target interventions to ensure it remains healthy. It will serve as an example for the rest of the world.”
###
&nbsp;

About IFC 

IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work with more than 2,000 businesses worldwide, using our capital, expertise, and influence to create markets and opportunities in the toughest areas of the world. In FY17, we delivered a record $19.3 billion in long-term financing for developing countries, leveraging the power of the private sector to help end poverty and boost shared prosperity. For more information, visit <a href="http://www.ifc.org/">www.ifc.org</a>.

Stay Connected 
<a href="http://www.ifc.org/southasia">www.ifc.org/southasia</a>
<a href="http://www.facebook.com/IFCsouthasia">www.facebook.com/IFCsouthasia</a>

 

About Sa-Dhan

Sa-Dhan is the oldest and largest association of community development finance institutions in India. It has been working for more than one and a half decades in supporting and strengthening the agenda of Financial Inclusion in India and creates a space and understanding of microfinance with policy makers, bankers, government, researchers and practitioners. It has a membership base of 187 institutions which reaches out to approximately 35 million clients across the country, with loan outstanding of more than Rs. 69,789 crores from over 90% districts in India. Sa-Dhan is recognized by the RBI as a Self-Regulatory-Organization (SRO) for the Microfinance Sector; and as a National Support Organization (NSO) by National Rural Livelihood Promotion (NRLM).

About The Smart Campaign 

The Smart Campaign works globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. As the world’s first financial consumer protection standard, the Campaign maintains a rigorous certification program, elevates the client voice, and convenes partners to effect change at the national level. Over 100 financial institutions, collectively serving more than 42 million people, have been certified for adhering to the Campaign’s industry-accepted consumer protection standards. The Smart Campaign is housed at the Center for Financial Inclusion at Accion. More at <a href="http://smartcampaign.org/index.php">www.smartcampaign.org</a>.

About Accion

Accion is a global nonprofit committed to creating a financially inclusive world, with a pioneering legacy in microfinance and fintech impact investing. We catalyze financial service providers to deliver high-quality, affordable solutions at scale for the three billion people who are left out of – or poorly served by – the financial sector. For more than 50 years, Accion has helped tens of millions of people through its work with more than 90 partners in 40 countries. More at <a href="http://www.accion.org/">http://www.accion.org</a>.

&nbsp;

&nbsp;

Sa-Dhan &amp; the Smart Campaign Launch IFC-backed Monitoring Tool to Strengthen Consumer Protection

Advances in how we can collect and analyze data have disrupted the financial services industry. Organizations are now able to learn more about customer behavior and preferences than ever before, and they’re applying these insights to improve the customer experience. However, as this capacity continues to grow, so do concerns about identity, privacy, and data protection. In the <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/what-is-identity-and-why-does-it-matter-3febb558785f" target="_blank" rel="noopener noreferrer">previous blog</a> in our digital identity series, we looked at the definition of identity. Now, we’re investigating the implications of digital identity from a privacy perspective and analyzing the impact of the EU’s General Data Protection Regulation (GDPR) as a demonstration model for emerging markets.
If the recent congressional hearing into <a class="markup--anchor markup--p-anchor" href="https://www.theguardian.com/technology/2018/apr/11/mark-zuckerbergs-testimony-to-congress-the-key-moments" target="_blank" rel="nofollow noopener noreferrer">Facebook’s data</a> practices wasn’t enough to make you wonder about the privacy of your online identity, the barrage of emails from companies chasing GDPR compliance likely was. While the scope of the legislation is only applicable for organizations dealing with the personal data of EU residents, it is likely to influence privacy protection principles worldwide.
Despite the fact that GDPR addresses<a class="markup--anchor markup--p-anchor" href="https://iapp.org/news/a/top-10-operational-responses-to-the-gdpr-part-2-lawful-bases-for-processing/" target="_blank" rel="nofollow noopener noreferrer"> 6 different legal grounds</a> for processing customer data, media coverage of its introduction has honed in on two key themes: 1) consent for access to data, and 2) transparency in communicating precisely how that data will be used. The focus on customer consent has sparked analysis of the effectiveness of enhancing privacy through increasing consumer rights to control their identity information.
Although, in theory, the right to consent will allow consumers to prevent access to their information in certain circumstances, in practice it may fall short of driving data protection. Consumers often do not read lengthy communications on legal terms and conditions, and when they do, many may still be unclear about the implications of permitting access to their data. This issue is exacerbated in emerging markets where consumers are typically less literate, less familiar with technology, and as a result, are potentially more vulnerable to exploitation.
With this in mind, it’s uncertain whether the right to consent inherently enhances consumer privacy or whether it simply provides a privacy-enabling structure that can be leveraged only by the highly informed. Given this context, we need to take the discussion beyond consent when considering how to protect user privacy in developing economies.
To explore this topic further, we hosted a webinar on <a class="markup--anchor markup--p-anchor" href="https://www.youtube.com/watch?v=yhdTyqjUMEI" target="_blank" rel="nofollow noopener noreferrer">Digital Identity for Financial Inclusion (click here to watch).</a> During the session, we took a look at some of the solutions being utilized to manage personal information and the impact they are having on financial inclusion, privacy, and commercial viability for financial service providers.

Is data privacy in emerging markets feasible?

<figure class="graf graf--figure"></figure>
The traditional financial system hasn’t worked for millions of Indians. The slow pace, the excessive documentation, the need to travel — all of these barriers locked people out of the formal economy and kept them from accessing the financial tools they need to improve their lives.
IndiaStack is changing the game. Using a digital infrastructure, IndiaStack brings paperless, cashless services to anyone with access to a smartphone, tablet, or computer. It will bring millions of Indians into the formal economy by breaking down the barriers that kept them out. Nandan Nilekani, the founder of Infosys, stated that IndiaStack is “India’s single most important innovation to formalize India’s domestic economy through digital services.”
Not only does IndiaStack ease access to financial services, it will also use the same digital system to help deliver government services in a transparent, accountable, and secure way. And since it’s digital infrastructure is accessible to businesses, start-ups, and developers, IndiaStack is already fostering innovation. Apps are being built to deliver financial, health, and educational services at scale.


[caption id="" align="alignleft" width="377"]<img class="graf-image" src="https://cdn-images-1.medium.com/max/1080/1*YErcHELYFE-Tcu5K4yUHUg.png" alt="IndiaStack is composed of 5 different elements: Aadhaar UID, e-KYC, e-Sign, DigiLocker, and UPI (Unified Payment Interface)" width="377" height="311" /> IndiaStack is composed of 5 different elements: Aadhaar UID, e-KYC, e-Sign, DigiLocker, and UPI (Unified Payment Interface).[/caption]
By making customer onboarding simple, fast, and cost-effective, IndiaStack has already proven its use for microfinance institutions, banks, and financial companies. Once IndiaStack is fully integrated, with easy authentication, payments, and information exchange, anyone will be able to open a bank account — without having to worry about cumbersome documentation or delays — and send and receive money by linking their account information to a virtual payments address.

<figure class="graf graf--figure graf--layoutOutsetLeft"></figure>
IndiaStack is composed of 5 different elements: Aadhaar UID, e-KYC, e-Sign, DigiLocker, and UPI (Unified Payment Interface). Each adds value for financial services providers and customers:

<ol class="postList">
 	<li class="graf graf--li">Aadhaar UID is a biometric-based unique identity platform at the heart of IndiaStack. Based on fingerprint and iris data, a twelve digit unique identification number is assigned to every individual by the Unique Identification Authority of India (UIDAI). For financial services providers, this provides a simple way to identify customers and to retrieve customer information. For customers, the value-add is simplicity — where all of their benefits are now linked to their unique identity number.</li>
 	<li class="graf graf--li">E-KYC is a paperless version of the verification process for new financial customers, called Know Your Customer (KYC). E-KYC empowers people with Aadhaar UIDs to share their information electronically using active biometric consent. Verification of the individual is completed by sending a biometric data pack to UIDAI for validation. UIDAI then sends the personal and demographic information of the individual to the business entity requesting the information, making sure the information is secure at every step. Financial services providers benefit from this process in that they can complete KYC verification procedures efficiently and cost-effectively. The online validation is completed in real-time and does not require the storage of documents. Customers save time, effort, and money that they would have spent compiling physical documents.</li>
 	<li class="graf graf--li">E-Sign, an online electronic signature service, is facilitated via E-KYC to digitally sign a document. This enables contracts and agreements to be executed quickly — while preventing forgery — a plus for both financial services providers and customers.</li>
 	<li class="graf graf--li">Digital Locker lets people digitally store and share important documents. This service first began as a mechanism to issue government documents to Aadhaar-holders in electronic format. Financial services providers are able to use this functionality to issue certificates, contracts, and agreements, and to access customer documents digitally. DigiLocker allows customers to control who has access to which documents, and it takes away the risk of potentially losing documents. Best of all, this service is free.</li>
 	<li class="graf graf--li"><a class="markup--anchor markup--li-anchor" href="http://www.accion.org/upi-changing-financial-inclusion-india/" target="_blank" rel="noopener noreferrer">Unified Payment Interface (UPI)</a> enables universal electronic payments. This cashless process lets financial services providers collect payments, fees, and charges electronically. The speed and efficiency of payments significantly lower the cost of operations. Customers benefit from the ability to make mobile payments instantaneously and at no cost.</li>
</ol>
These five components, when fully integrated, will usher in a paperless and cashless India. For financial services providers, the value of integrating into IndiaStack is boundless — easier, faster, and simpler transactions will dramatically improve the customer experience, while the cost of operations will be significantly reduced.
However, IndiaStack is still nascent, and some critics are concerned about security and privacy. The Aadhaar database, which centralizes identifying biometric data of over 1.1 billion people, is an attractive target for cybercrime — though the Indian government asserts that it’s protected by a state-of-the-art security system. The Aadhaar database can also be accessed by the government for purposes of “national security” — a law that is open to interpretation, posing serious privacy concerns. Financial services providers considering integrating with IndiaStack should consider both the potential benefits and costs.
To learn more about the ways that IndiaStack is transforming financial inclusion in India, <a href="https://www.youtube.com/watch?v=-GExQfQGFU8">watch our webinar</a>. In the webinar, we highlighted the risks and rewards of IndiaStack and the considerations financial services providers should take before integrating with this digital infrastructure.
The event is part of <a class="markup--anchor markup--p-anchor" href="http://financialinclusionweek.org/" target="_blank" rel="noopener noreferrer">Financial Inclusion Week</a> — an initiative of the <a class="markup--anchor markup--p-anchor" href="http://www.centerforfinancialinclusion.org/" target="_blank" rel="noopener noreferrer">Center for Financial Inclusion at Accion</a> that aims to strengthen the diverse community of players involved in building a more inclusive financial ecosystem. Financial Inclusion Week brings stakeholders across the globe together to explore the most important steps to achieving financial inclusion.

Data Transparency

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Strengthening our impact requires rigorous measurement

2022 Impact Report

Inclusive fintech leader stories: Martin Borchardt, Founder & CEO of Henry

Three ways to ensure people aren’t left behind in the rush to go digital

"The pandemic is a moment to get in touch" — Creditas’ Ann Williams

Five crucial insights from China for facing the pandemic

Fintech fuels inclusive growth for Destacame

Sa-Dhan & the Smart Campaign Launch IFC-backed Monitoring Tool to Strengthen Consumer Protection

Is data privacy in emerging markets feasible?

The game-changing innovation that could bring financial services to millions in India

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Sa-Dhan & the Smart Campaign Launch IFC-backed Monitoring Tool to Strengthen Consumer Protection

Is data privacy in emerging markets feasible?

The game-changing innovation that could bring financial services to millions in India