For Financial Inclusion Week 2019, CFI sought out a small group of financial inclusion thought leaders to comment and take a position on this year’s theme, “Financial Inclusion: For What?” CFI Director of Communications Virginia Moore sat down with Bobbi Gray (Grameen Foundation), Till Bruett (DAI), and Shivani Siroya (Tala) to discuss the theme and evaluate our four proposed answers to it: financial health, sustainable development, equity, and the bottom line. They examine ways in which these answers complement or conflict with one another, and assess how the industry should measure its success, among other topics.

Financial Inclusion: For What? Podcast

Financial Inclusion Week 2019

Financial Health

Financial Technology

Payments

Saving

Underserved Groups

Women

Podcast

In the March 14 <a href="https://www.raconteur.net/finance/financial-inclusion-banked">piece</a>, Rhyne’s insights are part of a broad survey of the global financial inclusion landscape -- from barriers to financial inclusion in the developing world, to its benefits and the tools that are helping to integrate marginalized populations into the “financial mainstream.”
“In the developing world there is an issue of absolute low incomes,” Rhyne said in the feature, which appeared in the <a href="https://www.raconteur.net/future-money-2019">Future of Money</a>, a 20-page insert published in <a href="http://www.thetimes.co.uk">The Times (UK)</a> in association with <a href="https://europe.money2020.com/">Money 20/20</a>. “In regards to how much in deposits people would be providing, how large a credit they might want, these are below the threshold of feasibility for banks using traditional branch-based, teller-based models. So you couldn’t put a branch out in a rural area and expect it to be profitable.”
Rhyne uses the example of hyperinflation in Latin America to illustrate why potential customers don't have bank accounts, and concludes the article by noting that digital payments “are going to be essential” over the next decade.

<a href="https://www.raconteur.net/">Raconteur</a> is a publisher of “special-interest content and research” whose special reports are inserted into the printed version of The Times (UK). Read the full article <a href="https://www.raconteur.net/finance/financial-inclusion-banked">here</a>.

Raconteur Features Elisabeth Rhyne in “Challenges in Banking the Unbanked”

Latin America and The Caribbean

Appropriate Product Design and Delivery

Credit

Digital Financial Services

Enabling Environment

Financial Inclusion Strategy

Fintechs

Mobile Banking

News

A market trader in Ghana hands over part of her day’s earnings to a susu collector every day. In Tanzania, villagers hold weekly Vicoba gatherings to pool savings, receive loans and catch up with the other members of the group. Informal savings mechanisms (ISMs), such as savings groups and daily savings collection, have long been of interest to the financial inclusion community because they demonstrate high quality savings and borrowing behavior and they work for people who do not normally consider themselves "bankable." The digital services revolution offers a prospect of closing the gap between formal and informal alternatives, combining a richer and more robust service offering with a greater understanding of savers’ needs and preferences.

Documented challenges on proximity, cost of acquisition and practical delivery make the provision of a service that benefits both formal and informal actors difficult to achieve. But <a href="https://www.opml.co.uk/projects/savings-frontier">Savings at the Frontier</a> (SatF), a partnership between <a href="https://mastercardfdn.org/">Mastercard Foundation</a> and <a href="https://www.opml.co.uk/">Oxford Policy Management (OPM)</a>, has set its sights on this goal, and is working directly with FSPs to achieve it.

During the early stages of the program, we selected a set of partner FSPs with promising concepts and provided them with up to $100,000 in business plan development funding to flesh out their ideas using whatever mix of technical assistance, customer research, piloting, systems work or prototyping required.

Full proposals underwent a second selection round, with the approved finalists eligible for conditional funding of up to $1 million to implement their business models. To date, SatF has partnered with three institutions in Ghana (Access Bank, DSS and Interpay), four in Tanzania (Equity Bank, Maxcom, NMB and TPB Bank) and one in Zambia (M-Finance).
<h3>What We’ve Learned So Far</h3>
Contrary to some stereotypes about the willingness and ability of FSPs to meet the needs of customers, particularly those of low income savers or people outside their traditional customer base, we have been surprised and pleased at how far our partners’ thinking has already gone, in understanding what it takes to make products relevant to this customer segment, how that can translate into a long-term relationship with internal savings mechanisms and their members, and how much institutional buy-in the SatF partnership has enabled. For example:
<ul>
 	<li>The funding incentive has allowed middle-level managers to promote linkage up the institutions’ corporate agendas. Operational managers feel able to use SatF’s support to further internal discussions with senior management and other stakeholders, potentially including regulators, government, mobile network operators, etc.</li>
 	<li>Customer centricity has become a central feature of the FSPs’ approach. Our partners understand that sustainable business means understanding and responding to genuine need. FSPs that conducted research and pilots and ultimately developed a full proposal were able to understand the ‘pain points’ and needs of their customers and reflect those in their product offerings.</li>
 	<li> Early piloting has allowed our partners to foresee and address operational constraints. From systems changes inhibiting take-up, to ensuring regular contact with customers to maintaining sufficient liquidity through the agent network, FSPs have been quick to pick up on issues that may hinder implementation and have either already identified workable solutions or are in the process of doing so.</li>
 	<li>Their reaction to challenges highlights the FSPs’ commitment, creativity and capacity to innovatively develop and deliver solutions. With the flexibility offered by their role as lead institutions, our partners have been able to consider a range of consortium options (working with facilitators, creating and facilitating their own informal savings mechanisms, identifying niche technical and delivery partners) and develop effective route-to-market strategies. FSPs have negotiated channel strategies to keep fees and charges affordable, reached out to specialist solution providers, and iteratively developed customer friendly interfaces or engagement strategies to make their products appealing and drive take-up.</li>
 	<li>FSPs appreciate that attracting clients and offering relevant services are key to achieving long term sustainability. Our partners acknowledge that working with informal savers is not about extracting margins. The viability of their business case will be determined by the FSPs’ capacity to attract and retain customers and develop products that address customer needs and expectations. In looking to offer customer friendly, convenient and affordable services, and creating improved outreach and communication channels, our partners are signaling they are taking sustainability seriously.</li>
</ul>
<h3>What Next?</h3>
Some upcoming challenges are already visible, such as bringing pricing more in line with customer expectations. Why, for example, should anyone pay to use a financial service when cash transactions are free? Other challenges include financial education, closing the proximity gap, agent availability and float management.

The ability of our partners to overcome these challenges will depend on how well they have learned from similar previous challenges. We as a project will also need to be flexible and create space for the FSPs to identify and implement solutions specific to their operating environment. To this end, we have developed a disbursement mechanism that allows us to assess progress and consider course corrections at various points in the process by releasing funding in tranches based on individually negotiated ‘promise cards’, which incentivise design work in the early stages and delivery in later stages. Each tranche has its own delivery milestones built as much around the emerging value proposition being offered to informal savings mechanisms and their users as on the usual kinds of activity/output milestones. These milestones create a continuous dialogue with FSP partners, which allow us to react to needs as they emerge, provide tailored support, and work together to identify elements of the business case that will support the sustainable delivery of their linkage products beyond the lifetime of our project.

As we head into the fourth year of the program, it is encouraging that both the SatF team and our FSP partners are as optimistic about the prospect of successful delivery as we were when we first started. Nurturing the interest and capacity shown by our partners, and taking a flexible and adaptive approach to fund disbursement, we stand a good chance of turning our optimism into success.

Change Management Inside Financial Service Providers: Takeaways from a Funder Partnering with African FSPs

Sub-Saharan Africa

Banks

Financial Service Providers

Partnerships

Blog Post

This week is <a href="http://financialinclusionweek.org/">Financial Inclusion Week</a> and today is <a href="http://www.world-savings-day.org/">World Savings Day</a>. In recognition of these concurrent days of reflection and support, we would like to use this digital space to discuss our work at the <a href="https://itad.com/knowledge-and-resources/mastercard-foundation-savings-learning-lab/">Savings Learning Lab</a>, where we set out to better understand the state of access to, and use of, savings in Sub-Saharan Africa (SSA). What we have learned will help prioritize and contextualize our work over the next few years.

The resulting report, <a href="https://itad.com/reports/briefing-paper-savings-count/">Savings Count</a>, provides a comprehensive synthesis of trends in demand and supply of savings services in SSA. It discusses behavioral trends in saving and barriers to saving, the range of providers and approaches that have made a difference, key policies and regulatory factors important to promote savings, as well as areas of progress, areas in which promising work is underway, and areas where significant progress is required.

Specifically, we set out to ask and answer the following questions.
<h3>Are savings part of the financial inclusion success story?</h3>
Unfortunately, it doesn’t look like savings have increased at the same rate as access to formal finance.

According to the 2017 Global <a href="https://globalfindex.worldbank.org/">Findex</a>, in SSA, despite an impressive increase in account ownership from 23 to 43 percent since 2011, the percentage of people who saved money with a formal financial institution stagnated at a low of around 15 percent.

This is concerning. We now know with certainty that the consistent use of financial services can help the world’s poorest people better manage risks, step out of poverty, and build a better life. Strong evidence indicates that savings are an essential part of this package. And while savings rates are higher in SSA than in other developing regions, they are still much lower than in higher-income regions. The persistence of dormant accounts and infrequent use of digital savings – along with poor households’ predominant use of informal savings mechanisms – indicate that people, particularly the poor, continue to face significant barriers to formal saving.
<h3>Is there a demand from clients? Or is savings no longer important in the rapidly changing world of financial services?</h3>
Our research shows there is a demand and that saving is as important as ever.

Savings are critical for poor people’s consumption smoothing, risk management and financing of important life goals such as education and starting a business. As an industry, we have made significant advances in understanding the impact of savings on customers in key areas such as income, consumption, resilience and food security. We now have a solid understanding of savings behaviors, needs and preferences, of how poor manage their money and what savings mechanisms work best for them. Savings are also good for financial service providers’ bottom lines and are required for economic growth.
<h3>Who serves this market and what are their difficulties in providing the services?</h3>
The low-income savings market is served by a range of providers such as banks, microfinance institutions, savings and credit cooperatives, and mobile money providers. All providers continue to face challenges in reaching this market segment. This is because poor people tend to keep small balances, transact often and live and work far from traditional banking outlets. Despite the challenges, significant advances have been made in reaching poor people through alternative delivery channels, the rise of digital financial services, the proliferation of linking savings groups to formal finance, and the use of customer-centric approaches. However, providers continue to struggle to serve this population segment with appropriate savings products. They face a number of challenges, including high costs of providing services and low profit margins, insufficient understanding of their clients’ behaviors, the distance of clients from branches, and product offerings that do not meet client needs.
<h3>If savings are so important, then what are governments doing to promote it?</h3>
The promotion of savings is strongly influenced by government regulation and financial inclusion policies. For example, regulation can determine if certain types of financial service providers can mobilize savings by obtaining deposit-taking licenses, or whether providers can mobilize savings from clients who may not meet all the required identification documents – by allowing for tiered KYC requirements.

Our research shows that countries in SSA employ a range of policy and regulatory initiatives that can help promote savings for low-income clients. These include the widespread adoption of national financial inclusion strategies, the implementation of regulation of e-money funds and the widespread regulation allowing the use of agents to facilitate account opening. Significant work in progress also exists on implementing regulations supporting simplified customer due diligence requirements and enforcement of customers’ ability to receive account information at no cost. However, the uneven prevalence of these examples in the region indicates that continued progress is still needed.
<h3>Our main conclusion after unpacking the data and evidence?</h3>
There is a need for savings to be promoted more prominently and more explicitly within the broader financial inclusion agenda.
<blockquote>There is a need for savings to be promoted more prominently and more explicitly within the broader financial inclusion agenda.</blockquote>
Increasing poor people’s ability to use savings mechanisms effectively is fundamental to shifting the industry’s focus from access alone to financial health and meaningful financial inclusion. And while the numbers don’t look so great yet, we believe that collectively as an industry we can make savings work! Our confidence is based on what we identified as existing advances along with promising work in progress in high impact areas, coupled with recommendations of where additional progress will make a significant difference.

We invite you to read our report and to join us in our effort to help close the gap in savings.

Editor's Note: Like what you read? Listen to SEEP's Financial Inclusion Week podcast, <a href="https://seepnetwork.org/Webinar-Post/Navigating-the-Evidence-on-Savings-Focused-Financial-Inclusion-Webinar">Navigating the Evidence on Savings-Focused Financial Inclusion</a>,  about a searchable, interactive evidence map that provides consolidated access to relevant evidence related to savings-focused financial inclusion.

Savings in Sub-Saharan Africa: Access, Policies and Priorities

Financial Inclusion Week

“How much money do people typically imagine they should have when saving for emergency needs? Is that different from what they need for the children’s education? What kinds of conversations are field staff having?

These and similar questions are quite familiar to financial institutions trying to mobilize long-term savings from low-income clients through their field staff. In this blog post, we share the story of how mobile application usage data allowed <a href="http://www.sajidafoundation.org/">SAJIDA Foundation</a>, an <a href="https://optixproject.org/">OPTIX</a> partner from Bangladesh to gain insights into member-staff conversations without actually being there: a kind of virtual “fly on the wall”. They gained an unprecedented look into how financial planning really unfolds as they sought to tailor a term-deposit product to people’s needs.

In October 2017, <a href="https://nextbillion.net/cross-sell-done-well-how-one-finance-app-found-a-balance-between-digital-and-human-touch/">we introduced the Financial Advisory Services (FAS) mobile app</a> designed to allow field officers at SAJIDA Foundation to identify members (as SAJIDA calls its clients) with longer-term savings potential, structure conversations around life goals, and simulate scenarios to arrive at appropriate amounts and terms for the term-deposit savings account.

Built into the FAS app is the capability to collect detailed usage data, including when and where the app was used, what actions were undertaken, and what information was entered to simulate scenarios. Any interaction on the device, such as the click of a button, filling in a text field, or submitting a form, is recorded. More than 20 officers used the FAS in 2017 and undertook 11,793 actions on the app. By threading together consecutive actions, we can approximately reconstruct actual conversations.
<h3>FAS app frames conversations as intended…and then some</h3>
When starting a conversation, field officers mention most of the savings goals the FAS offers (Figure 1). Users were able to choose from a list of eight specific goals and one “other.” These goals are chosen based on qualitative research with members and staff, and appear to be a fairly accurate representation of member savings goals. “Emergency Needs” is the most common, featuring in 31 percent of the conversations. The icon “For Children” comes second, at 25 percent. “Livestock” features in only 1 percent of the conversations, leading us to question its permanence on the goal screen.

An App, a Conversation and a New Account: A Novel Approach to Term Deposits in Dhaka

Bangladesh

Customer Centricity

Data Analytics

This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

&nbsp;

But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

&nbsp;

Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

Global Findex

Access Usage Gap

Digital Credit

Resilience

Trends

According to the <a href="https://globalfindex.worldbank.org/">Global Findex</a>, the percentage of adults in Mexico who are saving money at a formal institution plunged from 15 percent to 10 percent in just the past three years—despite financial inclusion strategies <a href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/">enacted by the government</a>. This steep decline in usage of savings accounts came as a surprise, and hit close to home for me as a Mexican. This <a href="https://cfi-blog.org/2018/06/18/is-financial-inclusion-stalling-the-2017-findex-results-raise-several-red-flags/">trend is a cause for concern</a>, and it’s also a call to action. At Accion, we took this as an opportunity to listen to the people we’d like to see benefit from financial services. With support of <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>, we wanted to understand why fewer people were saving in banks, what products and services people were using, and who was providing those services if it wasn’t formal institutions.

To get answers about what people in Mexico want from their financial service providers, I recently traveled home to Mexico City as part of a team of researchers. We listened to small merchants map out their entire financial lives—their motivations, goals and

[caption id="attachment_25738" align="alignright" width="286"]<img class="alignnone size-full wp-image-25738" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-fish-market-accion.jpg" alt="Man sells fish at a stall in an outdoor market" width="286" height="215" /> Fish market on San Gregario Street in Xochimilco, a southeastern municipality of Mexico City, one of the places we visited for our user research.[/caption]

aspirations, how they feel about various types of financial services, the strategies they use to stay financially healthy, and more.

Our biggest surprise? The individuals we talked with know about and can access a lot of financial products—they just aren’t using them. Lack of alignment between what low-income customers want and what financial products offer is a factor preventing further financial inclusion in Mexico.

All of the individuals we spoke to reported having access to microloans, consumer store credit, credit cards, and savings accounts. Financial access didn’t seem to be an issue for them — not even in the more rural areas we visited two hours outside the city. Even though our small, qualitative study may not be rigorous enough to extrapolate to the broader population, this finding seems to be consistent with national data. In Mexico, <a href="https://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf">86 percent of banking branches are located in urban areas</a>, so people close to the city are unlikely to deal with a shortage of services. What our interviews revealed is that a different issue is preventing further inclusion: lack of alignment between what low-income customers want and what current financial products offer. Most people we talked to dislike dealing with large commercial banks, and they continuously decline the offers for financial services they regularly receive, at their doorstep or in public places.

[caption id="attachment_25737" align="alignleft" width="275"]<img class="alignnone size-full wp-image-25737" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/07/mexico-azucena-mother-holding-baby.png" alt="Mother holding bay" width="275" height="366" /> Azucena is a former bank teller, however she prefers to save money at home. Alpuyeca, Morelos, Mexico, 2018.[/caption]

Many of the people we interviewed still prioritize saving cash at home, even if they also have a formal savings account.  For example, Azucena, a former teller at a large commercial bank branch, told us that despite her relationship with a bank, she and her husband still prefer to store cash informally. “We save at home, but we do so separately, using different lock boxes for different purposes,” she says.

Through our conversations with clients like Azucena, we discovered that informal alternatives like lock boxes continue to be more convenient for clients and preferable to formal options. Keeping cash at home is, after all, indispensable for unexpected emergencies. If your money is in a bank, you’d have the hassle of getting there and waiting. Plus, it may not be available 24/7, and you can run into issues if the ATM is offline or the pharmacist, mechanic, or whomever you’re turning to for help doesn’t take a debit card.

In many cases, the interviewees’ savings accounts had been opened for them by former employers to serve as payroll accounts or by the government for disbursement of benefits. These accounts were less “savings accounts” and more “distribution accounts” that were immediately turned into cash and saved at home. Because the savings aspect wasn’t used—in fact, was never emphasized—once they switched jobs or stopped receiving benefits, they let the accounts lapse.

Convenience may be a key issue, but it is not the only one. Feeling unsafe withdrawing money from a bank branch is also an issue because thieves wait where the money is—outside bank branches and near ATMs. The lack of trust our interviewees placed in financial institutions was often less about security and more about the unclear, high (real or perceived) maintenance fees banks charge on savings accounts.

Despite this perceived aversion to formal accounts, we found that people still continue to save and set high financial goals for themselves. In all the interviews we conducted, the number one financial goal was saving to access better opportunities: education of their children, a home for their family, or the chance of opening their own business. The demand is clearly there, and most of the people we talked to were indeed saving.

We heard from customers, and now we’re working with a mix of fintechs and financial service providers of all sizes to use those insights to create financial products that customers will want to use as key tools for their financial lives.  Stay tuned!

This research was conducted by <a href="http://www.accion.org/">Accion</a>, the Center for Financial Inclusion at Accion, and <a href="http://www.dalbergdesign.com/">Dalberg Design</a> as part of our part of our <a href="/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.

&nbsp;

Why Aren’t People Saving Money in Mexico?

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Mexico

Financial Capability

Microfinance Institutions

This post originally appeared on <a href="https://nextbillion.net/is-financial-inclusion-stalling-the-2017-findex-results/">Next Billion's blog</a> and is reposted here with permission.

<img class=" size-full wp-image-25657 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-cover_fig.png" alt="geographic distribution of 3 billion people without active accounts, 2017" width="2300" height="2325" />
About 3 billion people in the world either have no account or have an account that sits unused. The countries with the largest number of financially excluded people are also the highest population countries: India and China. This picture has changed little in the past three years.
The Global Financial Inclusion Database (Findex) is a survey of the financial habits of adults in 144 countries with data from 2011, 2014 and now (2017). Governments, foundations, big financial companies and fintechs alike rely on the Findex to understand how people are using (or not using) financial services. It is the best available yardstick through which we measure global progress toward financial inclusion.
<h3>A Misleading Findex Headline</h3>
Unfortunately – as we share in our recent report, <a href="http://www.centerforfinancialinclusion.org/storage/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results.pdf" target="_blank" rel="noopener">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a> – while we see a few bright spots, the overall results in the latest survey are decidedly less exciting than they were in 2014. The World Bank, which houses the Findex, announced the 2017 results with the headline that 69 percent of the world’s adults now have bank or mobile money accounts – which represents good progress toward its target of “<a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020" target="_blank" rel="noopener">Universal Financial Access” by 2020</a>. We agree that connecting hundreds of millions of people to the formal financial system is worth celebrating: If nothing else, it serves as heartening evidence that a sustained movement involving the private and public sectors in nearly every country can meet an important global challenge.

But that headline is deeply misleading, for two reasons. First, and somewhat embarrassingly, many new accounts are simply dormant. The accounts of a fifth of reported account-holders have had zero activity in over a year – no deposits and no withdrawals. If a small shop owner has a bank account but does not use it, the account is valueless to her and a burden to the financial service provider that invested in technology, staff and infrastructure to serve her. It’s wasteful.

<img class=" size-full wp-image-25655 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig03.png" alt="Graph of percentage of account-holding population with an inactive account, 2017" width="1370" height="1746" />
In 29 countries, more than one in five people have an account but have not used it in the past year. Inactivity has increased in the past few years.

India accounts for the greatest number of these dormant accounts. In 2014, Prime Minister Modi launched the Pradhan Mantri Jan Dhan Yojana (Prime Minister’s People’s Money Scheme), which required banks to open millions of new accounts. The Guinness Book of World Records recognized the effort when <a href="http://www.guinnessworldrecords.com/news/2015/1/india-makes-financial-world-record-as-millions-open-new-bank-accounts" target="_blank" rel="noopener">a staggering 18 million bank accounts</a> were opened in a single week. This campaign and many related Indian government efforts show up clearly in some of the Findex results. Bank account ownership in India more than doubled since Findex began in 2011. But more than a third of those accounts appear to be idle, even using the very soft definition of “active” as one transaction in a year.
<h3>Sobering Financial Inclusion Stats in Emerging and Frontier Markets</h3>
Beyond the positive headlines, the data raise some issues: First, focusing only on active accounts, the number to remember is that across the developing world, only 48 percent of adults have accounts, whether at a financial institution or mobile money provider. But the second problem with the World Bank’s positive Findex spin is even more important than slow growth in active accounts. Savings and credit are at least as important as accounts when it comes to indicators of financial inclusion. But little or no progress is apparent in either. More precisely, since 2014, in the developing world as a whole, savings is down and credit is flat.

<img class=" size-full wp-image-25656 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig06.png" alt="Graph of saving, borrowing, and digital payments, 2011-2017 (developing countries)" width="2300" height="1446" />

Credit is flat, and savings is declining, even as digital payments make significant gains.

Take savings, a stepping stone to better financial health. If access to accounts is making a difference in the lives of the newly included, this should show up in more people saving. Instead, the fraction of people who saved through a formal account – 20 percent – was slightly lower than the 22 percent reported in 2014. The segment saving for retirement fell to a very low 15 percent in 2017, worrisome indeed as the global population ages.

On the credit side, the number of people borrowing from a financial institution increased very slightly in the past three years. However, the data do not provide evidence that the new and much-lauded forms of digitally delivered and big-data-based credit have substantially boosted access. Fintech innovations using algorithms, machine learning and artificial intelligence for credit scoring may revolutionize access to small loans, but as of 2017, either they are simply transforming the way credit is provided to existing groups, or they have not yet achieved transformative scale.

The lack of progress on savings and credit could help explain why the Findex responses to the question on financial resilience – whether a person can quickly come up with money needed for an emergency – also failed to show improvement.
<h3>Looking on the Bright Side</h3>
Findex results offer one important bright spot: digital payments. We are witnessing an enormous transformation in the infrastructure of banking, as more people use digital payments to send and receive money and to buy goods and services. In the developing world, 44 percent of the people surveyed had used digital payments in the past year, up solidly from 32 percent in 2014. All kinds of digital use cases are increasing, from online purchases and direct deposit of salaries to paying utility bills through an account. There is a clear and convincing trend – even if there is also a long way to go before the developing world reaches the degree of digitization common in high-income countries, where 91 percent have made such payments.

The emerging digital infrastructure may one day support the financial well-being of most of the world’s people. But we’re not there yet. The latest Findex results set the stage for the financial inclusion community to reflect and reconsider its assumptions so that everyone working in this field can better ensure that access to accounts and payments translates into active use and benefit for the 3 billion financially underserved people around the world.

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&nbsp;

Is Financial Inclusion Stalling? The 2017 Findex Results Raise Several Red Flags

Delivery Channels

<div class="getty embed image">

Financial inclusion momentum has slowed in the past three years, the 2017 Global Findex revealed. The financial inclusion community may wish to reflect on these results, recalibrate expectations, and then re-engage.

In a <a href="http://bit.ly/DeconstructFindex">new report</a>, the Center for Financial Inclusion at Accion journeys through the 2017 Global Findex data recently released by the World Bank, which assess progress toward financial inclusion on the basis of a 150-country study conducted by Gallup. We examined the 2017 Findex data from our own perspective, and although we found some good news, there are also some concerning trends.

In recent years, the headline for financial inclusion has been the percentage of adults in the world with accounts (either financial institution or mobile-based). That number has grown since 2014 to 69 percent – good news. But we believe it is more relevant, if less encouraging, to focus on the number of adults with active accounts, that is, accounts they have used at least once in the past year. That number is 55 percent, representing a net gain of 280 million active accounts between 2014 and 2017, a much more modest gain than the nearly 700 million total new accounts added in the previous three years (2011-2014).

Looking specifically at the developing world and correcting for account dormancy, only 48 percent of adults in developing countries have active accounts – disappointingly, participation remains below half. Overall, account growth has slowed, and at the same time the access-usage gap has grown.

[caption id="attachment_25628" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/account-ownership.png"><img class="wp-image-25628" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/account-ownership.png" alt="" width="615" height="382" /></a> (click to enlarge)[/caption]

Moreover, these new accounts have not resulted in greater availability of credit or greater incidence of savings. Savings has dropped slightly in many countries in the past three years – and that includes both saving in any form and saving in financial institutions. In developing countries as a whole, about 20 percent of the adult population saves in financial institutions. Credit is essentially flat at 15 percent of the adult population, which may be a surprise for some who have watched with anticipation the rise of fintech-enabled digital credit using alternative data and algorithms. These new forms of credit will need to scale a great deal more before they can make a significant difference in the big picture of financial inclusion.

[caption id="attachment_25624" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/borrowing-activity.png"><img class="wp-image-25624" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/borrowing-activity.png" alt="" width="616" height="382" /></a> (click to enlarge)[/caption]

Financial inclusion promises to provide people with more options and tools to manage their day-to-day funds, respond to emergencies, and seize opportunities. The Findex survey asked whether people believe they can come up with funds in case of emergency. In developing countries, however, responses were slightly less positive in 2017 than in 2014. Asked whether they could come up with 1/20 GNI per capita in a month, only about 50 percent of people in developing countries said it was possible—down 8 percentage points from the 2014 survey.

In short, a full suite of quality financial services that supports financial well-being is still a distant dream for more than half of the developing world.

The bright spot, however, involves greater use of digital payments. Many more people in the developing world have been involved in a digital transaction in the past year than ever before. In developing countries, an additional 12 percent of adults reported having made a digital payment in the last year. Of wage recipients in developing countries, about half received wages into an account in the past year, and 21 percent of people in developing countries purchase things and pay bills using mobile phones or the internet. Mobile accounts are connecting people to financial services all across Africa and in a handful of other countries, and at the same time in other regions, more people are using mobile phones to access their financial institution accounts.

[caption id="attachment_25625" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/payments.png"><img class="wp-image-25625" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/payments.png" alt="" width="615" height="380" /></a> (click to enlarge)[/caption]

Despite the growth of digital payments, the Findex 2017 results overall are sobering. Financial inclusion, while further away than expected, is still an achievable goal. It requires considerable thought and engagement from all industry stakeholders to ensure that inclusion will create active usage and meaningful change in the lives of consumers. We hope the financial inclusion community will use the 2017 results to engage in a serious conversation about how financial inclusion initiatives are affecting usage, products and financial well-being, and then to re-engage with eyes open as we continue pursuing the important tasks at hand.

For more analysis on these and other areas of financial inclusion, read the new report, <a href="http://bit.ly/DeconstructFindex">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a>.

Have you read?

<a href="https://cfi-blog.org/2018/04/19/new-global-findex-sixty-nine-percent-of-global-population-is-banked/">New Global Findex: Sixty-Nine Percent of Global Population Is Banked</a>

<a href="https://cfi-blog.org/2018/04/25/findex-and-financial-health-in-eastern-europe-and-central-asia/">Findex and Financial Health in Eastern Europe and Central Asia</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

</div>
&nbsp;

&nbsp;

&nbsp;

Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results

That question is at the crux of a different kind of emergency savings fund. A “f*ck off fund” is savings you can leverage when you need to break away from your current situation – say, when you need to leave a harmful relationship or a problematic job. The term was coined a few years ago and has become popular, in recognition of its distinctiveness from other types of savings and its importance especially among women.

In a survey of adult women in the United States, <a href="https://www.glamour.com/story/why-you-need-a-fuck-off-fund">71 percent</a> indicated they’ve stayed in a job because they couldn’t afford to leave, and 31 percent said they’ve been financially trapped in a relationship. A f*ck off fund, equivalent to roughly three-to-six months’ worth of living expenses, provides the financial means to leave any such situation and start again. This might apply if you’re unhappy with your current work or living situation. Perhaps you want to quit your job and take that internship to jumpstart your career in a different industry. Or, more importantly, if you have been sexually harassed, abused, or feel unsafe but otherwise wouldn’t have the financial means to remove yourself from a bad relationship. This sort of fund provides the financial power to leave a situation.

This kind of savings fund is in keeping with mainstream financial advice. In addition to insurance, it’s recommended to have the safety net of three-to-six months’ worth of savings. Of course, just because this is recommended doesn’t mean most of us have these sorts of savings. Additionally, there are a few characteristics that differentiate this sort of fund from other types of emergency savings. If you are in a long-term relationship and are sharing finances with your significant other, your emergency savings might be joint with that person. However, what happens if the reason you need these savings is to leave? A personal emergency fund would be advisable. If your work environment were problematic, would it be as easy for you to mobilize savings from your family and friends to leave this situation as it would be to mobilize savings for a medical expense? As with savings for education or housing, it is typically a good idea to have savings set aside exclusively for this purpose.

It’s been exhilarating and heartening recently to witness a watershed moment for action against sexual harassment and abuse in the United States. And in many of these cases, the harassers have considerable financial power over their victims.

We were tipped off on the concept of a f*ck off fund by an <a href="https://www.glamour.com/story/why-you-need-a-fuck-off-fund">article</a> in Glamour. Glamour surveyed over a thousand women in the United States and found that 72 percent of respondents did not have such a fund, and that 51 percent have less than $500 in their savings. A third of the respondents said paying down debt was their main financial goal, and half said they have gone negative on their bank balances at least once in the last year. The financial roadblock they cited most frequently was simple: they did not make enough money at their jobs. You can find the survey’s full results <a href="https://www.glamour.com/story/money-secrets-from-1000-real-women">here</a>.

Have you read?

<a href="https://cfi-blog.org/2014/11/03/domestic-violence-and-microfinance-what-is-our-role-as-financial-service-providers/" target="_blank" rel="noopener">Domestic Violence and Microfinance: What Is Our Role As Financial Services Providers?</a>

<a href="https://cfi-blog.org/2016/07/15/the-heart-and-science-of-client-assessment/" target="_blank" rel="noopener">The Heart and Science of Client Assessment</a>

<a href="https://cfi-blog.org/2017/04/03/can-bank-accounts-save-womens-lives-violence-against-women-and-financial-inclusion/" target="_blank" rel="noopener">Can Bank Accounts Save Women's Lives? Violence Against Women and Financial Inclusion</a>

&nbsp;

&nbsp;

If You Suffered Domestic Abuse, Would You Be in a Financial Position to Leave?

North America

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Amee Parbhoo

Ashley Lewis

John Plaisted

Jordan Coriza

Jorge de Angulo

Leonardo Tibaquira

Matthieu Albrieux

Megan Peterson

Michael Schlein

Nancy Widjaja

Pablo Anton-Diaz

Rachel Morpeth

Yanina Seltzer

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Video

Until now, we've never invested in any Egyptian companies at Accion Venture Lab, but we've been watching for promising fintechs. After all, there's a real opportunity to make a difference in the country. Only one-third of Egyptian adults have bank accounts, according to the World Bank's Global Findex. That means the majority of Egyptians have to pay every bill in cash and turn to family and friends for emergency funds or when they need a loan. Without cards and savings accounts, people are left living paycheck-to-paycheck, and managing life expenses is a struggle. But there's hope that technology can change that since millions of underserved Egyptians are already actively using smartphone. By developing an easy-to-use mobile app, we believe our first investment in Egypt, <a href="https://khazna.app/">Khazna</a>, can bring accessible credit and savings product to financially excluded Egyptians.

Khazna is a fintech company developing a holistic, app-based banking solution, including savings, loans, insurance, and access to a pre-paid card, for the underserved. Khazna is looking to provide an affordable alternative to credit while helping Egyptians save and manage their longer-term financing needs. Its first product is an earned salary cash advance, which works through an employer partnership model. Today, the company partners with small, medium, and large enterprises to reach their employees and provide an alternative short-term loan for these individuals.

Venture Lab is excited to support the Khazna team at this early stage and to have them as our first investment in Egypt. While we see a tremendous opportunity in the financial inclusion space in Egypt, we were particularly interested in investing in Khazna for the following reasons:

Large, unaddressed, and digitally native population ripe for digital financial services: We believe that early-stage fintech businesses are primed to address Egypt’s financial inclusion challenges. In addition to being one of the most populous countries in the region, it's also one of the youngest countries in Africa, with an average age of 24 years old. The World Bank estimates that just 10-15 percent of Egyptians have bank accounts, which is one of the lowest penetration rates in the world. At the same time, Egypt has one of the most digitally native and active consumer bases across Africa. This creates a unique opportunity because the population has access to smartphones and the internet, and has experience using digital platforms, such as Careem, Swivl, Halan, and Uber. Given these market dynamics, we believe that Egypt is a prime environment for digital financial services.

“New asset lending” as an alternative to traditional consumer loans: Credit penetration rates in Egypt are strikingly low with just 6 percent of adults having borrowed from a formal institution. Khazna enables low- and middle-income customers with little to no credit history to access funds to help manage day-to-day needs and emergency expenses. Customers’ paychecks don't always cover everything they need, so having access to credit via income streaming for bills, family expenses, and medical emergencies allows them to avoid taking out expensive debt, going into collections, and paying late fees. It also gives them greater financial flexibility. Khazna credit products are more affordable than informal lenders and target underserved customers. Khazna focuses its solution on employers that work with lower and middle income workers to help these populations gain access to services. Additionally, the tier-based fee model allows borrowers to select loan amounts according to what they can afford, and pricing is communicated clearly upfront.

Leveraging business partnerships to de-risk lending operations and reach scale: Khazna is targeting both business and end consumers with its products, starting with businesses first. While selling to businesses can be a long process, Khazna is leveraging strong partnerships to deploy their solution into one large enterprise to access their employee population. We’ve heard in several of our markets that employees often demand an advance on their salary , and employers don't want to provide it themselves, which makes this issue a pain-point for both employers and employees. This is a critical need for those employees who are trying to manage financial shocks but are unable to access formal credit. While many startups, including in Venture Lab’s portfolio, have struggled to sell into employer channels, we believe that the Khazna team has a unique ability to connect with decision-makers within established businesses. We believe by leveraging the employer channel, Khazna will be able to de-risk their lending portfolio, develop relationships with customers, and reach scale more quickly.

As is the case for all of our seed investments, Khazna is early in its journey. However, as investors in the company and advocates for a more financially inclusive world, we couldn’t be more excited to support Khazna's growth and ensure that more Egyptians gain access to the critical financial services so they can manage their financial needs and improve their lives.

A new way to help people living paycheck-to-paycheck in Egypt

Khazna

Financial Service Provider

Impact Investor

Social Good

Accion Venture Lab

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.

"I want to tell you this story, but I am embarrassed," Eileen* said. 

"That's OK, I responded, you really don't need to share anything you don't want," I replied. 

"No, no, I want to tell you...” 

“So, my husband and I both save money at home. He puts his in a box in a drawer, like everyone. I have a special place, and my husband makes fun of it all the time.” 

“One time, we had robbers at home. They found his box and stole all of his money.” 

“My money is still there — they couldn't find it." She said with a smile. 

"Wow, you must have a really smart place of hiding money," I responded. 

"Well, I save money in my...,” she hesitates, “... pads, you know, my monthly ones."

*Name has been anonymized.

<hr />

When I interview customers to inform user-centered design, I want to understand what they’re thinking, feeling, and doing. It is always the stories they tell me that provide the best inspiration. From Eileen’s short story, I learned that she’s proud of the money she puts away. She's worried about safety but creative enough to find a place where the money can't be found by others. I understand that she and her husband save separately, even though it is just the two of them in the household. I also see she has a bit of embarrassment — but mostly pride — in her innovative savings mechanism. I made sure to congratulate her for her creativity and for introducing me to a new hiding place for valuables!

Over the last 18 months, Accion’s <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions">Global Advisory Solutions</a> team has been working on designing products that will build financial health, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion">in partnership with MetLife Foundation</a>. One of our partners, <a href="https://cpcerano.com.mx/alianza/">Caja Popular Cerano</a>, is a financial cooperative with more than 100,000 clients and 225 branches across Mexico. It was founded in 1965 and has a strong social mission to serve individuals who haven’t benefitted from financial services in the past. Despite being a well-established financial service provider, with decades of experience, the cooperative realized a need to attract young customers, particularly as their client base is aging. They approached Accion to help them find a solution to the challenge of reaching more Millennial and Generation Z clients.

Caja Popular Cerano isn’t the only institution having difficulty in attracting young clients. The inclusion of young individuals in the global financial system has always been a challenge. Institutions are launching youth-centered products that incorporate innovative methods to promote savings and encourage financial health best practices. But according to a <a href="https://www.wocculatam.com/">WOCCU</a> study conducted in 2015, only 23.19 percent of youth surveyed in Latin America were clients of a banking institution. The study concluded that we need to adapt offerings on smartphones and use social media to attract a highly digital generation that has very different behaviors from previous generations. The study also found that Millennials are looking for a financial institution that allows them to conduct transactions at any time.

Our team embarked on this project aware of the need to do things differently for youth. We want to create a product designed to attract and help as many young people as possible. By putting individuals and their concerns at the center of product design and development, we can come up with innovative concepts and ideas that will work. By carrying out in-depth interviews, co-creation sessions, and repeated interactions in a relaxed and open environment, we gathered insights and compiled an intimate picture of the youth in Mexico.

Our interviews confirmed and expanded on the findings of the WOCCU report. We found that young people in Mexico are reticent to take out loans but are very excited to save for specific projects. Even if they don’t make much money, they value saving a little bit each month. They like using mobile apps, as this is how they keep in touch with friends. They’d love to be able to shop online but often lack a credit card or mobile money account. In fact, most people told us that they don’t currently use formal financial services, but they would like to build a positive relationship with a bank or credit union.

<img class="alignright wp-image-20013" src="http://content.accion.org/wp-content/uploads/2019/10/Screen-Shot-2019-10-18-at-1.30.38-PM-1024x515.png" alt="Through client interviews, Caja Popular Cerano learned that in order to attract and engage young customers, they would need to: Help customers to save, Be available to customers 24/7, Be smartphone accessible, Provide credit building opportunities, Be savvy on social media, Prove that they are socially conscious" width="500" height="252" />

We recently finished a round of prototyping with young people in Mexico. We tested an application concept that encourages users to put a little bit of money aside each month. Over time, it offers loans to help build the individual’s credit history. We also tested marketing messaging and found that youth wanted to partner with a socially minded institution that cares about poverty and the environment.

By putting customers like Eileen at the center of the products that we create, we are ensuring that the services provided by Caja Popular Cerano and our other partners can cater to the youth population. When we provide products that meet their needs, we can empower young people to seize more opportunities and dream bigger than before.

 Gabriel Quiros Rubio contributed to this article.

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Young people in Mexico need finance that fits their lives

Caja Popular Cerano

MetLife Foundation

Financial Inclusion Practitioner

Institutional Funder

Accion Global Advisory Solutions

It’s hard to find a downside to encouraging people to save more money.  Savings can help businesses and individuals reach their long-term goals and protect them from economic shocks. Recognizing the need for better savings opportunities among underserved microentrepreneurs, many microfinance institutions in Latin America have <a href="https://www.centerforfinancialinclusion.org/mobilizing-savings-among-microfinance-institutions-in-latin-america#more-20984">launched programs and initiatives</a> to get their customers to save more. These banks often find that they also benefit by boosting savings because they can diversify their funding structure, reduce risk, and generate customer loyalty that comes with offering a comprehensive suite of services.

Despite the win-win opportunity, institutions still encounter barriers to launching a savings product. These accounts are frequently left dormant by customers and driving usage may not be a priority for an institution that’s structured around credit operations. On all sides, savings products face an extra hurdle because everyone wants immediate results. Savings products compete with other services (like credit products) that are more attractive to clients and institutions. Many people prefer getting the funds they need immediately through a loan rather than putting in the time and effort it takes to accumulate savings. For the institution, credit provides them with income as soon as it’s disbursed, whereas savings translates to more long-term yields.

An effective savings product can help customers think more long-term if it’s complemented with a marketing campaign that motivates a change in people’s behavior. And the product itself should also drive the customer to want to use it with both digital and physical channels that create a positive customer experience.  Mibanco, a leading microfinance bank in Peru, has done just that. In 2016, the bank was experiencing low growth rates in new accounts and a high dormancy with its existing savings accounts. The bank initiated a campaign to make sure clients were getting what they needed from their financial services. With the support of Accion’s <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions/">Global Advisory Solutions</a>, Mibanco used a client-centered design methodology to understand customers’ needs. The institution conducted interviews, developed financial diaries, and mapped the customer journey so that it could develop products and channels that reflected clients’ lives. Based on this research, Mibanco launched “tigres de ahorro” (or <a href="http://tigresdelahorro.pe/">tigers of saving</a>).

[caption id="attachment_18838" align="alignleft" width="500"]<img class=" wp-image-18838" src="http://content.accion.org/wp-content/uploads/2019/06/mibancosavings.jpg" alt="Example of Mibanco's myth busting" width="500" height="524" /> Many people believe that it is safer to keep their money under the mattress. The tiger busts this myth saying, “A Tiger of Savings sleeps on a mattress, but does not keep his money there. Too often are the cases where the mattress is burned, or money is lost. It is safer to keep your savings with MiBanco.”[/caption]

This initiative launched in August 2017 with a new set of products aimed at the underserved. These products include features and functionalities that motivate savings — like tying savings to the clients dreams and aspirations and reminding the user about their goals — while also providing the flexibility and convenience valued by customers. The bank added additional channels — including agents, digital solutions, and a motivational communications plan — to complement the new products and encourage greater savings. The products’ homepage even busts myths about saving.

As of March 2019, more than 280.000 new accounts have been opened and deposits have increased, showing that the product is attractive and useful to customers. Mibanco’s commitment and dedication to the project made this possible — the institution adjusted internal processes, trained its commercial force, and built in monitoring and evaluation mechanisms.

We’re glad to support the work Mibanco is doing because saving money is critical to help microentrepreneurs build a more stable future. We hope that “tigres de ahorro” continues to motivate even more people to save and fosters financial health.

&nbsp;

How do you get people to build their savings?

Mibanco

According to the <a class="markup--anchor markup--p-anchor" href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">Global Findex</a>, the percentage of adults in Mexico who are saving money at a formal institution plunged from 15 percent to 10 percent in just the <a class="markup--anchor markup--p-anchor" href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">past three years</a> — despite financial inclusion strategies <a class="markup--anchor markup--p-anchor" href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/" target="_blank" rel="noopener noreferrer">enacted by the government</a>. This steep decline in usage of savings accounts came as a surprise and also hit close to home for me as a Mexican. This <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/is-financial-inclusion-stalling-af0fbd502550" target="_blank" rel="noopener noreferrer">trend is a cause for concern</a>, and it’s also a call to action. At Accion, we took this as an opportunity to listen to the people we’d like to see benefit from financial services. <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/how-accion-metlife-foundation-will-improve-financial-inclusion-in-latam-1838b934d3e0" target="_blank" rel="noopener noreferrer">With the support of MetLife Foundation</a>, we wanted to understand why fewer people were saving in banks, what products and services people were using — and who was providing those services if it wasn’t formal institutions.
To get answers about what people in Mexico want from their financial service providers, I recently traveled home to Mexico City as part of a team of researchers. We listened to small merchants map out their entire financial lives; their motivations, goals, and aspirations, how they feel about various types of financial services, the strategies they use to stay financially healthy, and more.
Our biggest surprise? The individuals we talked with know about and can access a lot of financial products — they just aren’t using them.
All of the individuals we spoke to reported having access to microloans, consumer store credit, credit cards, and savings accounts. Financial access didn’t seem to be an issue for them — not even in the more rural areas we visited two hours outside the city. Even though our small, qualitative study may not be rigorous enough to extrapolate to the broader population, this finding seems to be consistent with national data. In Mexico, <a class="markup--anchor markup--p-anchor" href="https://www.cnbv.gob.mx/Inclusi%C3%B3n/Documents/Reportes%20de%20IF/Reporte%20de%20Inclusion%20Financiera%208.pdf" target="_blank" rel="noopener noreferrer">86 percent of banking branches are located in urban areas</a>, so people close to the city are unlikely to deal with a shortage of services. What our interviews revealed is that a different issue is preventing further inclusion: lack of alignment between what low-income customers want and what current financial products offer. Most people we talked to dislike dealing with large commercial banks, and they continuously decline the offers for financial services they regularly receive, at their doorstep or in public places.

<figure class="graf graf--figure graf--layoutOutsetLeft"></figure>
Many of the people we interviewed still prioritize saving cash at home, even if they also have a formal savings account. For example, Azucena, a former teller at a large commercial bank branch, told us that despite her relationship with a bank, she and her husband still prefer to store cash informally. “We save at home, but we do so separately, using different lock boxes for different purposes,” she says.
Through our conversations with clients like Azucena, we discovered that informal alternatives like lock boxes continue to be more convenient for clients and preferable to formal options. Keeping cash at home is, after all, indispensable for unexpected emergencies. If your money is in a bank, you’d have the hassle of getting there and waiting. Plus, it may not be available 24/7, and you can run into issues if the ATM is offline or the pharmacist, mechanic, or whomever else you’re turning to for help doesn’t take a debit card.
In many cases, the interviewees’ savings accounts had been opened for them by former employers to serve as payroll accounts or by government programs for disbursement of benefits. These accounts were less “savings accounts” and more “distribution” accounts that were immediately turned into cash and saved at home. Because the savings aspect wasn’t used — in fact, was never emphasized — once they switched jobs or stopped receiving benefits, they let the accounts lapse.
Convenience may be a key issue, but it is not the only one. Feeling unsafe withdrawing money from a bank branch is also an issue because thieves wait where the money is — outside bank branches and near ATMs. The lack of trust our interviewees placed in financial institutions was often less about security and more about the unclear, high (real, or perceived) maintenance fees banks charge on savings accounts.
Despite this perceived aversion to formal accounts, we found that people still continue to save and set high financial goals for themselves. In all the interviews we conducted, the number one financial goal was saving to access better opportunities: the education of their children, a home for their family, or the chance of opening their own business. The demand is clearly there, and most of the people we talked to were indeed saving.
We heard from customers, and now we’re working with a mix of fintechs and financial service providers of all sizes to use those insights to create financial products that customers will want to use as key tools for their financial lives. Stay tuned!
This research was conducted by Accion, 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>, and <a class="markup--anchor markup--p-anchor" href="http://www.dalbergdesign.com/" target="_blank" rel="noopener noreferrer">Dalberg Design</a> as part of our part of our <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/" target="_blank" rel="noopener noreferrer">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.
&nbsp;

Why aren’t people saving money in Mexico?

Center for Financial Inclusion

Twenty-six years ago in the Andes Mountains of Bolivia, the microfinance industry was transformed. Accion and a local partner transformed a Bolivian nonprofit institution into Banco Solidario S.A, the first regulated commercial bank in the world dedicated to serving micro and small entrepreneurs. Today, <a href="https://www.bancosol.com.bo/">BancoSol</a> serves almost one million clients, nearly half of which are women.
Bringing needed banking services to low-income Bolivians isn’t easy. Bolivia has the <a class="markup--anchor markup--p-anchor" href="https://www.worldatlas.com/articles/the-richest-countries-in-south-america.html" target="_blank" rel="noopener noreferrer">lowest GDP per capita</a>, and it’s the second <a class="markup--anchor markup--p-anchor" href="http://hdr.undp.org/en/composite/HDI" target="_blank" rel="noopener noreferrer">lowest in South America on the Human Development Index</a>, which measures quality of life. It is one of only two landlocked countries on the continent and is bordered by the Atacama Desert, Andes Mountains, and Amazon Rainforest, making access to international markets challenging. Bolivia’s regulatory environment presents challenges as well, involving strict regulations for the <a class="markup--anchor markup--p-anchor" href="http://www.bnamericas.com/en/news/banking/bolivian-banks-brace-for-govt-imposed-lending-rate-caps/" target="_blank" rel="noopener noreferrer">productive sector</a>, which includes tourism, mining, agriculture, and manufacturing. As of 2013, the interest rates for productive sector loans have been capped at <a class="markup--anchor markup--p-anchor" href="http://www.bnamericas.com/en/news/banking/bolivian-banks-brace-for-govt-imposed-lending-rate-caps/" target="_blank" rel="noopener noreferrer">11.5 percent</a>, and by 2018, <a class="markup--anchor markup--p-anchor" href="http://www.bnamericas.com/news/banking/bolivias-financial-reform-to-force-private-banks-to-become-more-efficient-competitive?lang=en" target="_blank" rel="noopener noreferrer">60 percent</a> of all universal bank portfolios must consist of loans directed to this sector.
Despite these obstacles, BancoSol has managed to continuously improve its performance by expanding its outreach to underserved clients. Its success has attracted competition to the industry, thereby decreasing costs for borrowers and enhancing the quality of the products offered. BancoSol has been able to create a notable demonstration effect, changing the perception of microfinance as a high-risk sector to a worthwhile venture capable of achieving a double bottom line of social impact and revenue generation. Even in a growing industry, the bank serves more clients in the microenterprise sector than any of its competitors.
Bolivian regulations combined with BancoSol’s client-focused model have propelled its business forward. Microfinance interest rates vary <a class="markup--anchor markup--p-anchor" href="http://www.paginasiete.bo/inversion/2016/4/17/que-dice-harvard-sobre-bancosol-93430.html" target="_blank" rel="noopener noreferrer">from one country to the next</a>, from about 30 percent in Ecuador to as high as 80 percent in Mexico. Bolivia’s average microfinance interest rate of 13.5 percent is one of the lowest in the world. When the government introduced interest rate caps, all microfinance lenders except BancoSol opted to drop their lower-ticket clients. BancoSol embraced this challenge as an opportunity to reinvent the bank’s business model by leveraging technological innovations to lower costs and increase efficiency. For example, although the bank has a mobile app, it also made essential banking activities accessible through SMS to address low smartphone penetration. BancoSol even introduced <a class="markup--anchor markup--p-anchor" href="https://www.bancosol.com.bo/secciones/productos-y-servicios/microseguros" target="_blank" rel="noopener noreferrer">insurance policies</a> to meet customers’ needs for resilience and security. By exploring ways to better serve its target market with new products, alternative delivery channels, and technological solutions, BancoSol has maintained client trust and continued to grow.
In recent years, Accion has played a leading governance role in BancoSol. Recently, we acted as an anchor investor to bring in a grid of like-minded shareholders strategically aligned to the bank’s social mission. Much of BancoSol’s success can be attributed to its outstanding management and staff. CEO Kurt Koenigfest has led the bank through difficult times, guiding with a disciplined management style, a focus on results tied to the bank’s social mission, and an effort to establish personal connections with clients and employees. His dedication to the bank’s mission has paid off. Today the bank serves more than 650,000 savers, over 260,000 borrowers, and close to 190,000 microinsurance clients. Furthermore, BancoSol’s delinquency rate hovers at less than 1 percent, the lowest in Bolivia’s microfinance industry and one of the best in the world.
BancoSol is actively involved in Bolivia’s community development through the implementation of <a class="markup--anchor markup--p-anchor" href="https://www.bancosol.com.bo/wp-content/uploads/2016/03/Memoria-Capital-Social-2016.pdf" target="_blank" rel="noopener noreferrer">programs</a> that cover topics ranging from financial literacy and business tactics to sports and music. Because BancoSol’s core clientele lack formal education, they typically do not have the capacity or experience to manage their businesses properly at the start. BancoSol recognized there was a gap that needed to be filled. Coupling microloans with proper training programs empowered business owners to leverage capital while developing their skills, allowing their small businesses to lift off the ground and become profitable.
With nearly two-thirds of Bolivians employed by the informal economy, and the microenterprise sector expanding at 5 percent annually, BancoSol is fueling growth by providing solutions at financial, strategic, and operational levels. BancoSol has set a precedent for the success of the industry in Bolivia, and it continues to be an example of a model microfinance institution across the globe.

Transforming finance for low-income people in Bolivia

BancoSol

Accion Global Investments

Everyone needs access to high-quality financial tools. They give entrepreneurs the keys to start businesses, let parents send their kids to school, help families finance the significant moments in their lives — from marriages to children to retirement. These tools are helpful for building better lives, but they are also necessary to help people stay resilient through life’s worst moments.
With the earthquakes, hurricanes, floods, and wildfires of 2017, it’s becoming increasingly clear that those with the least money often pay the highest price during natural disasters. Many of the world’s poorest people live in communities that lack resilient infrastructure and financial tools. Often, these are in hot regions and coastal areas that are vulnerable to harsh weather. For people to prepare, rebuild, and feel confident that their families will get back on their feet, they need access to financial services and tools such as insurance, savings, and loans.

<h3 class="graf graf--p">Insurance Should Be Simple and Affordable for More People</h3>
Globally, there are 3.8 billion low- and middle-income individuals without adequate coverage. 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> and the <a class="markup--anchor markup--p-anchor" href="https://www.iif.com/" target="_blank" rel="noopener noreferrer">Institute of International Finance</a> are researching how to provide affordable <a class="markup--anchor markup--p-anchor" href="https://www.iif.com/publication/research-note/insights-inclusive-insurance" target="_blank" rel="noopener noreferrer">“inclusive insurance” for these underserved consumers</a>.
The purpose of this research is to help insurance companies provide better coverage for those who need it most. Losing everything due to unforeseen events is already devastating, but for people with limited disposable income and no insurance, it is almost impossible to recover. Without insurance, people cannot manage the financial shocks caused by natural disasters. These events can permanently derail businesses and force families into life-altering decisions, such as taking kids out of school and putting them to work.
Microinsurance, one of the topics of the research, makes coverage more accessible to low-income consumers through lower premiums. Insurance companies are updating their offerings due to the demand for these more modest insurance products. There has been a lot of growth in this industry in the last decade. From 2005 to 2016, prominent insurance companies that provide microinsurance grew from seven to 60.
Insurance companies are also finding other ways to update their services and help make coverage more accessible for an emerging middle class around the globe. One example is creating uncomplicated plans, such as pay-as-you-go models.
Another opportunity that is helping widen insurance coverage is coupling services with existing mobile financial products or creating new mobile solutions that bring insurance services straight to a consumer’s phone.

<h3 class="graf graf--p">Everyone Needs a Rainy-Day Fund</h3>
Without money and credit, how can someone rebuild after disaster hits? That’s a big question for the 3 billion people worldwide who lack access to bank accounts, credit cards, loans, or online money-transfer.


[caption id="" align="alignnone" width="1382"]<img class="graf-image" src="https://cdn-images-1.medium.com/max/1440/1*Lv2SX5VDxCVrNebBOI0YZw.jpeg" alt="José Ramón Gómez builds his business with funding from Financiera FAMA in Nicaragua. These loans reinforce his tile-making enterprise so he can help reinforce his neighbor’s roofs." width="1382" height="922" /> José Ramón Gómez builds his business with funding from Financiera FAMA in Nicaragua. These loans reinforce his tile-making enterprise so he can help reinforce his neighbor’s roofs.[/caption]
To address this need, our partners go the extra mile to make financial services more inclusive. For example, one of our partners, <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/7970-2/" target="_blank" rel="noopener noreferrer">Financiera FAMA</a>, is building a digital banking platform in Nicaragua to bring small loans to rural clients, who have long been on their own without access to banks and funding. In Nigeria, <a class="markup--anchor markup--p-anchor" href="http://www.accionmfb.com/Home.aspx" target="_blank" rel="noopener noreferrer">Accion Microfinance Bank</a> is developing a mobile savings-based loan program that will make it easier for lower-income customers to save and access small loans. And <a class="markup--anchor markup--p-anchor" href="http://www.ayefin.com/" target="_blank" rel="noopener noreferrer">AYE Finance</a>, in India, is helping small business owners who lack the financial history to secure a loan through traditional banks by evaluating them based on similar businesses and distributing funds. Thanks to innovative practices like these, people previously left out of the financial system can now take out a loan or start a savings account — simple actions that can prove invaluable in the face of natural disasters.
Improved savings and loan services and inclusive insurance plans are necessary for people to take control of their lives when life feels most out-of-control. Let’s make sure everyone can build their businesses, support their families, and stay resilient in an unpredictable world.

With natural disasters getting more severe, people need money to prepare and rebuild

Accion Microfinance Bank

Aye Finance

FAMA

As we gather with our families for Thanksgiving this week in the United States, I want to thank the people who have helped Accion give others the financial tools they need to build better lives.
Accion’s supporters and partners helped us provide savings, insurance, credit, payments, and other high-quality financial services to those in need. These tools make it easier for ailing people to purchase medicine, for families to pay tuition, for entrepreneurs to start and grow businesses; they provide our clients with some measure of protection against life’s inevitable challenges.
Over the past year, our work has helped Accion make a difference all around the world by:

<ul class="postList">
 	<li id="edd7" class="graf graf--li graf-after--p">Ensuring that over 30 million Indian families and entrepreneurs could launch businesses, purchase homes, and hire more employees through our partnership with IFMR Holdings.</li>
 	<li id="23c3" class="graf graf--li graf-after--li">Helping South Africans with HIV and diabetes obtain insurance and receive medical treatments through our partnership with AllLife.</li>
 	<li id="409d" class="graf graf--li graf-after--li">Using satellite imagery to help African farmers grow more food and raise better crops by supporting Apollo.</li>
 	<li id="7b15" class="graf graf--li graf-after--li">Setting higher standards for global microfinance, ensuring that more than 40 million clients could rely on fair pricing, transparency, and complaint resolution by promoting the Smart Campaign, the world’s first global financial protection standard.</li>
</ul>
Even in the best of years, these achievements would mean a great deal. Yet natural disasters — earthquakes, floods, and hurricanes — made 2017 especially difficult for our partners, their employees, and their clients in Mexico, Peru, India, and even in the U.S. These events reminded us that our clients are among the world’s most vulnerable people; they need insurance, savings, credit, and other essential financial tools. These basic tools help families and businesses get back on their feet, get back to work, and provide for their children.
To all of our supporters and partners: thank you! We could not do our work without you.
As we <a class="markup--anchor markup--p-anchor" href="https://www.linkedin.com/pulse/fintech-inclusion-2018-six-big-trends-were-watching-michael-schlein/?lipi=urn%3Ali%3Apage%3Ad_flagship3_profile_view_base_post_details%3B5eV2fG%2BYQj%2BM%2Bh7X2jcwAg%3D%3D" target="_blank" rel="nofollow noopener noreferrer">look ahead to 2018</a>, we ask you for your continued support. Whether it’s entrepreneurs in India, patients in South Africa, or farmers in Kenya, we can work together to make an important difference in peoples’ lives and ensure that they have the tools they need to thrive.
Again, thank you and happy holidays.

Why I’m grateful this Thanksgiving season

AllLife

Apollo Agriculture

IFMR

[embed]https://vimeo.com/233545290[/embed]
<a class="markup--anchor markup--p-anchor" href="http://www.escalaeducacion.com/" target="_blank" rel="noopener noreferrer">ESCALA Educación</a> is a Colombian startup that works with companies to develop savings plans so employees can save money for their own or their children’s college tuition. In Colombia, public universities are able to serve only a fraction of eligible students, and private university costs are prohibitive for working-class and even most middle-class families. Through ESCALA, workers set up education savings accounts, and their employers can offer matching funds, tuition discounts, scholarships, and other incentives. The companies like it because it increases employee loyalty and supports career development, and the employees like it because it helps them reach a goal that had previously seemed very remote.
ESCALA founder Jonathan Duarte himself knows the benefit of a college degree. His own parents never had the chance to go to college, but instilled in him the importance of education. He started working on the ideas behind ESCALA when he was in business school, then started it as a side project, eventually quitting his job to dedicate himself to it full time.
<img class="graf-image alignnone" src="https://cdn-images-1.medium.com/max/1600/1*E4lNOIULP45EBgKeCFXYRQ.png" alt="Jonathan Duarte, CEO of ESCALA Educación" width="1200" height="600" />
In this interview, Duarte talks about the challenges he’s faced in launching ESCALA — not only working with financial institutions that are not used to serving lower-income customers, but also convincing potential customers that the ESCALA model isn’t “too good to be true.”
Looking toward the future, Duarte would like to expand the model into other countries in Latin America. “I feel like I’m adding a little bit of hope to the world, and hope for a better Colombia and a better Latin America,” he says.
This interview took place at the June 2017 <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/what-goes-into-launching-an-inclusive-fintech-startup/" target="_blank" rel="noopener noreferrer">CEO Forum and Fintech for Inclusion Global Summit</a>, hosted by <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="noopener noreferrer">Accion Venture Lab</a>, <a class="markup--anchor markup--p-anchor" href="https://www.fmo.nl/" target="_blank" rel="noopener noreferrer">FMO</a>, and <a class="markup--anchor markup--p-anchor" href="http://www.quona.com/" target="_blank" rel="noopener noreferrer">Quona Capital</a>.
ESCALA and Accion Venture Lab have partnered since 2017.

Jonathan Duarte of ESCALA Educación

Fintech founders up close

In Colombia, only 50 percent of the population between 17 and 24 years of age have an education beyond high school level, compared to more than 80 percent in the U.S. There are several reasons for this low rate. Some students feel that higher education isn’t for them, while others avoid it because they don’t see the value in tertiary education.
One of the most prominent barriers to higher education is the lack of access to education financing. For instance, 50 percent of Colombian college students end up dropping out, and 70 percent of these drop-outs are due to financial reasons.
However, driven by the country’s economic recovery and progress and its booming service sector, the economy is increasingly demanding a more highly educated and skillful labor force. A higher level of education is also a key driver of upward mobility in Colombia — a professional with a bachelor’s degree earns about 3.5 times more than one with only a high school degree.
Most students turn to Colombian public universities, which are high quality, tuition-free institutions. However, getting into these universities can be very challenging because they don’t have the capacity to keep up with a growing demand for education. This leaves a majority of students to enroll in private institutions where cost and quality vary greatly.
<a class="markup--anchor markup--p-anchor" href="http://www.escalaeducacion.com/" target="_blank" rel="noopener noreferrer">ESCALA Educacion</a>, Accion Venture Lab’s latest investment, aims to help address the issue of access to education financing. ESCALA Educacion was co-founded 2012 at the Harvard Innovation Lab by Jonathan Duarte, Andrea Echavarria, and Juliana Uribe. After benefiting from their own education at elite universities in the US, they were driven to help provide high-quality education to Colombians.
ESCALA Educacion offers automated saving plans to cover higher education cost for lower- and middle-income families. ESCALA Educacion partners with small, medium and large businesses to provide plans to their employees. Participating employees’ monthly contributions are automatically deducted from their payroll and transferred to a low-risk, interest-generating investment account. Employers can support the employees by matching up to 100 percent of their contributions. The savings can be used to finance the education of employees or their children.
ESCALA Educacion also provides enrolled employees and beneficiaries access to tuition discounts ranging from 10 percent to 60 percent at over 40 higher education institutions, with more than 800 programs ranging from technical degrees to master degrees, and even short-term courses, such as a coding boot camp and English.
In addition, ESCALA Educacion provides free mentoring sessions to enrolled employees. These sessions help guide the students, and their parents, as they navigate through their higher education and professional career plans. ESCALA’s customers also have access to a large range of free education-related services through their affiliation with non-profit organizations that work to remove other barriers to accessing education by offering coaching, grant programs, affordable textbooks, and many other services.
ESCALA also benefits employers. It works as a powerful retention tool that enables businesses to provide their employees with a strong incentive to stay long-term, reducing turnover rates while helping enhance the educational opportunities of the employees and their families.
Venture Lab is excited to work closely with the ESCALA team. We invested in the company — our first in Colombia — for a number of reasons:

<ul class="postList">
 	<li class="graf graf--li">Leveraging the employer-employee relationship to promote savings among lower- and middle-income workers: The employer matching of the employees’ contributions creates a strong incentive for employees to continue saving until the end of the plan. It also helps build new and long-term saving and commitment behaviors. Matching funds from the employer create the incentives to complete the saving program and fulfill the original savings goal. Automatic discounting from the payroll is key to secure the allocation of the funds to the program and avoid short-sighted spending. Low- and middle-income segments in Colombia have a strong distrust of financial institutions following a series of financial crises in the past decades, and ESCALA is leveraging the trust in the employers to create confidence in the structure.</li>
 	<li class="graf graf--li">Clear impact potential, even beyond savings: By directing the savings toward educational programs, ESCALA is promoting the upward mobility of low- and middle-income employees. ESCALA’s solution combats the main cause of dropout in higher education in Colombia. While ESCALA has been focusing so far on educational programs, there is a great potential to expand use to other categories, including housing, healthcare, retirement, and financial products such as credit scoring and loans.</li>
 	<li class="graf graf--li">Opportunity to learn from a powerful acquisition channel: We have seen a growing number of opportunities leveraging the employer channel to reach underserved segment. We think such a channel could be very powerful in terms of acquisition and engagement, and we are excited to learn more about it.</li>
</ul>
We are excited to support ESCALA as they continue to grow and scale and provide greater access to quality education to Colombians.

Why we invested in ESCALA Educación

Escala

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<div class="content">
<div class="content-node">

Bogota, Colombia, October 11, 2017 – Colombia-based ESCALA Educación announced today that it has closed a seed funding round to increase savings for higher education, generate social mobility, and ultimately reduce the income inequality gap in Colombia. This funding will allow ESCALA Educación to scale operations in Colombia by expanding its team, and boost digitization of operations. Investors include Accion Venture Lab, the seed-stage investment initiative of financial inclusion leader Accion, Mountain Nazca Colombia, Invictum Capital, and several other Colombian angel investors.

ESCALA Educación works with businesses and universities across Colombia to boost directed savings for higher education. ESCALA Educación offers safe, automated savings plans and coaching services for higher education to lower- and middle-income workers by partnering with businesses to distribute the plans to their employees. Employees’ monthly contributions are automatically deducted from the payroll and transferred to independent and secured interest-generating accounts. Employers then match up to 100% of the employee contributions. To bring even more savings to families, ESCALA Educación partners with select private universities to offer discounted tuition pricing.

“We look forward to working closely with our new prominent partners Accion Venture Lab, Mountain Nazca Colombia, and Invictum Capital. Accion Venture Lab’s strategic portfolio engagement support and global expertise in financial inclusion, Mountain Nazca Colombia’s regional expertise in scaling innovative businesses, and Invictum Capital’s strong local network and engagement capacity can help expand ESCALA Educación’s savings plan to an underserved market in Colombia,” said Jonathan Duarte, Co-founder and CEO of ESCALA Educación.

“In Colombia, nearly half of the students who start college drop out, and a majority of those students leave for financial reasons,” said Michael Schlein, CEO and President of Accion. “ESCALA Educación helps families and students overcome these challenges. It uses an innovative model that combines automated savings plans and coaching to reach the underserved through employers, providing them with access to savings plans that ultimately help them reach their educational goals.”

“Accion Venture Lab is excited to make its first investment in Colombia,” said Vikas Raj, Managing Director of Accion Venture Lab. “ESCALA Educación’s strong management team, initial traction proving a strong market fit, and exciting combination of customer acquisition and engagement strategies position it well to promote directed saving plans to support higher education and upward mobility of lower- and middle-income people across the country.”

“Mountain Nazca firmly beliefs that education is key to reach sustainable development and improve the region’s quality of life. ESCALA Educación has the capacity of helping emerging countries to overcome the access barrier for education,” said Patricia Saenz, Managing Partner of Mountain Nazca Colombia. “We are excited to be part of ESCALA Educación, as we believe that with a great team and great partners we can consolidate a great impact.”

###

About ESCALA

Educación ESCALA Educación is a social enterprise that promotes access to higher education and financial inclusion by offering enhanced saving plans with educational benefits. ESCALA partners with companies and becomes their main educational benefits provider, through which employees save through their paychecks for education either for themselves or their children. These savings are coupled with company matching funds, tuition discounts, career counseling and other education benefits that make higher education accessible for all. Based in Medellin, Colombia, ESCALA launched commercially in 2016 and works with more than 15 companies and hundreds of customers and beneficiaries in the country.

About Accion Venture Lab

Accion Venture Lab is the world’s leading seed-stage investor in fintech for the underserved. Venture Lab invests capital in, and provides support to, innovative fintech startups that increase access to, improve the quality of, or reduce the cost of financial services for the underserved at scale. Since launching in 2012, Venture Lab has deployed over US$10 million across more than 30 startups that work in over 20 countries worldwide. Venture Lab is a part of Accion, a global nonprofit committed to creating a financially inclusive world, with a pioneering legacy in microfinance and fintech impact investing. Accion catalyzes 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. For further information, visit <a href="https://www.accion.org/venturelab">https://www.accion.org/venturelab</a>.

About Mountain Nazca Colombia

Mountain Nazca Colombia is a local Multi-Stage venture capital fund investing in early stage tech companies with high impact potential. We are backed by experienced entrepreneurs; part of a regional group with operations in Mexico, Chile, Argentina and Colombia. We benefit from a Regional Network through Mountain Nazca Latam (Chile, Mexico, Argentina), and a Global Network through Mountain Partners (+90 portfolio companies with 9 international hubs), high learning curve form investments in LATAM, altogether more than 39 years adding value to companies. We are all former entrepreneurs “by entrepreneurs for entrepreneurs”.

About Invictum Capital

Invictum Capital is a boutique investment firm focused on exponential organizations in Colombia and Latin America. It was structured within Andi del Futuro, local network of high-profile entrepreneurs members of ANDI, the most important association of the private sector in the country.

Media Contacts

Maria Alejandra Acosta (ESCALA Educación)
<a href="mailto:macosta@escalaeducacion.com">macosta@escalaeducacion.com</a>
+57 310.848.4002

Katie Mounts (Accion)
<a href="mailto:kmounts@accion.org">kmounts@accion.org</a>
+1 202.280.5859

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ESCALA Educación Secures Funding from Global Investors to Boost Savings for Higher Education in Colombia

By Srishti Kedia
According to <a class="markup--anchor markup--p-anchor" href="https://www.federalreserve.gov/newsevents/pressreleases/other20160525a.htm" target="_blank" rel="nofollow noopener noreferrer">a survey by the Federal Reserve</a>, 46 percent of Americans said they do not have enough money to cover a $400 emergency expense. In fact, according to <a class="markup--anchor markup--p-anchor" href="http://www.worldbank.org/en/programs/globalfindex" target="_blank" rel="nofollow noopener noreferrer">another study, from the World Bank</a>, only 54 percent of the US adult population has a formal savings account, while in developing countries that proportion of adults is even lower — 26 percent in Indonesia, 12 percent in Brazil, and as low as 9 percent in Tanzania.
At <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/venturelab" target="_blank" rel="nofollow noopener noreferrer">Accion Venture Lab</a>, we believe there is a huge need to provide individuals with options to save money. We have made one investment in the space with <a class="markup--anchor markup--p-anchor" href="https://www.emoneypool.com/" target="_blank" rel="nofollow noopener noreferrer">eMoneyPool</a>, an online platform that automates saving circles in the United States, and are eager to do more. As we look at investment opportunities, we wanted to learn more about the unique savings needs of lower-income consumers and how others were thinking about solutions.
To that end, I recently attended <a class="markup--anchor markup--p-anchor" href="http://local.aarp.org/aarp-event/savings-innovation-forum-h9nl6y98cp6.html" target="_blank" rel="nofollow noopener noreferrer">AARP’s Savings Innovation Forum</a>, where leaders in the field came together to discuss emerging strategies and programs to expand savings among low-income American households. Here’s what I learned.

<h2 id="0613" class="graf graf--p graf-after--p">We need a new savings paradigm for low-income consumers</h2>
<a class="markup--anchor markup--p-anchor" href="https://wp.nyu.edu/jmorduch/" target="_blank" rel="nofollow noopener noreferrer">Jonathan Morduch</a>, author of The Financial Diaries: How American Families Cope in a World of Uncertainty, gave a great talk on how we need to change the way we have been thinking about savings. We have all been taught that the way to save is to do it slowly and steadily. Put a little bit away each month. That way you’ll have enough for those big milestones — retirement, children going away to college– and if there ever comes a “rainy day.”
This works great if you have a steady paycheck every month, but many low-income people do not always have that luxury. The <a class="markup--anchor markup--p-anchor" href="http://www.usfinancialdiaries.org/" target="_blank" rel="nofollow noopener noreferrer">US Financial Diaries</a> project tracked 235 low- and moderate-income households over the course of a year to understand how families managed their finances on a day-to-day basis. They learned that for many low-income people, their income is anything but steady. Even for those that have a stable job, income ebbs and flows. For example, a car repairman drums up plenty of business in the winter when snow leads to breakdowns, and in the summer when the heat takes a toll. But in moderate spring and fall, there’s a real dip in earnings. This income volatility is further exacerbated by mismatches between people’s income and expense cycles.
When these shortfalls occur, lower-income consumers have to pull from their long-term savings accounts, making it difficult to save for the long term.

<h2 id="6ad9" class="graf graf--p graf-after--p">Help customers “save for soon” in order to help them save long-term</h2>
Morduch also shared that the way to smooth these consumption short-falls is to provide products that help people “save for soon” in addition to saving for key milestones and a rainy day. Think of these savings as “working capital.” They require active maintenance; you build up your savings in the peaks and then draw down from them during the dips.
These short-term savings products need to add structure but also provide consumers with flexibility. Savings products today either do not have enough discipline (e.g. regular savings accounts) or have too much of it (e.g. retirement accounts with large penalties for early withdrawals). The Financial Diaries highlighted a few examples of innovative workarounds that American families have used to achieve this balance. Although none of these are necessarily recommended, these examples are helpful in understanding what kind of balance these consumers need:

<ul>
 	<li id="ed1c" class="graf graf--p graf-after--p">Bank of Mom: One man gave his savings to his mother. He knew she would prevent him from spending his money irresponsibly, but he could still access the money if he really needed it.</li>
 	<li id="4503" class="graf graf--p graf-after--p">A Bank Far, Far Away: A woman purposefully opened a savings account at a bank that took multiple hours to drive to, and destroyed her debit card so she could not access the money via ATM. She could still access the money when necessary, but the long drive time added a significant non-monetary cost and helped add discipline.</li>
 	<li id="5f9b" class="graf graf--p graf-after--p">Essentials for Days: Another American family would use their savings to stock up on essentials (such as shampoo or groceries) rather than deposit savings. This prevented them from spending on unnecessary expenses. When they hit their income slumps, they would draw on their stock of essentials.</li>
</ul>
<h2 id="0f95" class="graf graf--p graf-after--p">Intervene before people are in trouble</h2>
There was unanimous agreement across panels that we need to do more before people get trapped in a vicious cycle. <a class="markup--anchor markup--p-anchor" href="http://advanced-hindsight.com/commoncents-lab/" target="_blank" rel="nofollow noopener noreferrer">Common Cents Lab</a>, an organization that develops solutions based on behavioral intervention, shared two interesting pre-emptive approaches to short-term savings.

<ul>
 	<li id="3212" class="graf graf--p graf-after--p">Leverage existing payments to make the unexpected expected: For example, people recognize that cars require regular repair costs, but they do not factor these costs into the purchase. Common Cents Lab worked with <a class="markup--anchor markup--p-anchor" href="https://www.creditunion1.org/index.php" target="_blank" rel="nofollow noopener noreferrer">Credit Union 1</a> to design a savings account linked to a car loan. When setting up direct payments for their car loans, consumers were prompted to “round-up” the loan payment and contribute the excess into a savings account, providing consumers with a less painful way to save.</li>
 	<li id="c97a" class="graf graf--p graf-after--p">Help consumers pre-commit to savings for windfalls: Common Cents Lab partnered with <a class="markup--anchor markup--p-anchor" href="https://digit.co/" target="_blank" rel="nofollow noopener noreferrer">Digit</a>, a start-up that helps people save via automatic deductions based on spending patterns, to help them better manage their tax refund. Digit asked users via text if they want to save part of their tax refund before it hits their account, and if so, what amount. When the tax refund comes through, the app automatically deducts the amount from checking and transfers it into a savings account. With this simple intervention, CommonCents Lab was able to increase short-term savings by 50 percent.</li>
</ul>
<h2 id="ce89" class="graf graf--p graf-after--p">The jury is still out on how employers can facilitate savings</h2>
The panels had mixed reactions on how employers can help solve the savings problem.
Some panelists found employers very eager to collaborate and help improve the financial health of their employees, while others were much less receptive. The panelists did agree on the need to make sure the incentives are aligned and to carefully consider compromises between employer and employee needs.
Thanks to AARP for hosting a great event! We’re excited to see how the savings space continues to evolve.

Lessons in savings innovation and financial inclusion

For decades, traditional savings circles (also called <a href="https://en.wikipedia.org/wiki/Rotating_savings_and_credit_association">ROSCAs</a> in the U.S., tandas in Mexico, chamas in East Africa, chit funds in India, arisans in Indonesia, among other names) have been a widely popular alternative for individuals without access to formal bank accounts to save and borrow money with a group of people that they know and trust.

The concept revolves around the idea that each member of the circle contributes a chunk of money each month — and every month, a different member of the circle receives a lump sum.

Back in 2014, our team <a href="http://nextbillion.net/digitizing-savings-circles-for-the-base-of-the-pyramid/">wrote</a> about the trends and potential of digitizing savings circles for the base of the pyramid— how the rapid adoption of mobile phones and the internet across the world could bring the centuries-old concept into the digital space and eventually encourage the un- and under-banked to save.

We have since come across a variety of startups that are trying to take advantage of the idea of digital savings circles and grow them into impactful and sustainable businesses. In March 2014, we invested in <a href="https://www.emoneypool.com/">eMoneyPool</a>, an online platform that automates saving circles in the United States. By digitizing clients’ saving circles, the platform reduces group administration costs and time, enabling groups to be dispersed across wide geographical areas and encouraging participants to form pools with those outside their immediate network.

In addition to eMoneyPool, we have also been intrigued by a number of other models out in the market. <a href="https://moneyfellows.com/">Moneyfellows</a> allows individuals in the UK, UAE and soon Egypt to leverage their social network to get cheaper loans. Money can be paid out to accounts all over the world or can be used to purchase items from a number of retailers at a guaranteed discount. <a href="http://www.mapan.id/">Mapan</a>, a product of <a href="http://www.ruma.co.id">Ruma</a>, builds upon the widely popular arisan scheme in Indonesia, enabling a group of friends or community members to save money collectively to purchase consumer goods from Mapan’s catalog. <a href="https://chamasoft.com/">Chamasoft</a> provides software for chama administrators in Kenya to manage member payments and loans and chama financial accounts. These models and other new entrants seek to harness digital savings circle user behavior and serve them more efficiently by leveraging increased access to technology, including:  <a href="https://www.ahorrolibre.com/">Ahorro Libre</a>, <a href="https://www.tutanda.com/">Tutanda</a> (Mexico); <a href="http://www.e-savings.club/">E-Savings Club</a> (Uganda, Benin); <a href="http://osusu.mobi/">Osusu Mobile</a> (Nigeria); <a href="https://chamasoft.com/">Chamasoft</a>, <a href="http://www.safaricom.co.ke/personal/m-pesa/do-more-with-m-pesa/m-pesa-chama-account">m-PESA Chama</a> (Kenya); <a href="http://banksousou.com/">BankSouSou</a>, <a href="https://clearstreetinc.com/">Clearstreet</a>, <a href="http://elikya.co/">Elikya</a>, <a href="https://www.emoneypool.com/">eMoneyPool</a> ,<a href="http://www.getmonkapp.com/">Monk</a>, <a href="https://www.puddle.com/">Puddle</a> (US); <a href="http://www.matontine.com/#home">Ma Tontine</a> (Senegal); <a href="https://moneyfellows.com/">MoneyFellows</a> (UK/Egypt); <a href="http://www.ngwe.su/">Ngwe.Su</a> (Myanmar); <a href="http://www.mapan.id/">Arisan Mapan by Ruma</a> (Indonesia)

We believe there is a huge need to provide individuals with options to save money, in particular, to weather potential shocks. A large population around the world does not have a savings account at a financial institution: in the U.S. only 54 percent of the adult population has a formal savings account, while in <a href="http://www.worldbank.org/en/programs/globalfindex">developing countries</a> the proportion of adults with formal savings account is even lower – 26% in Indonesia, 12% in Brazil, and as low as 9 percent in Tanzania. Digital savings circles could not only open access to accounts but reduce friction and time through automation.

Moreover, formalizing savings circles could address the lack of trust many users have for traditional savings circles. In the <a href="http://fsdkenya.org/wp-content/uploads/2016/02/The-2016-FinAccess-household-survey-report1.pdf">2016 FinAccess household survey</a> by FSD Kenya, even though many Kenyans use chamas/ROSCAs (over 36 percent use chamas weekly), only 2 percent of men and 7 percent of women consider them their most “trusted financial provider.” On the other hand, while a bank account is used by fewer Kenyans (only 16 percent have a weekly bank activity), 42 percent of men and 34 percent of women view banks as the most trusted financial provider. We do believe formalizing savings circles through digitization could create greater transparency to what is a <a href="http://nextbillion.net/news/about-70-of-susu-collectors-operating-illegally/">largely unregulated practice</a>.

Despite the sizeable number of people currently using traditional savings circles worldwide, startups have faced substantial challenges in transitioning these customers to the digital space. As we look at these new models, we see several key factors that are both the biggest challenges facing companies and the biggest opportunities for innovation:
<ul>
 	<li>User experience: For many users, savings circles are an important link to their communities. Does digitizing take the appeal out of savings circles? How can companies transfer the social experience and the trust that exists within the communities, which is arguably one of the biggest benefits for traditional savings circles, to the virtual space and build upon customers’ social networks and connections?</li>
 	<li>Customer acquisition: Digital savings circles require, not surprisingly, digitally savvy customers. What is the best way to find and sign up those customers in a cost-effective way? How can startups leverage partnerships with financial providers, mobile network operators, or distribution partners to access customers?</li>
 	<li>Required conditions for adoption: Given the importance of customer engagement and automation, there are specific conditions necessary for digital savings circles. Customers may need to have access to smartphones in order to participate in a compelling user experience or require bank accounts (or mobile money accounts) to route payments and disbursements. Since many users do not have access to these products or services, how do new models effectively serve target customers? How much behavior change is required of customers to start using digital savings circles?</li>
 	<li>Use cases for funds: We have started to see models tieing savings circles with e-commerce sites and other retailers, where customers benefit from discounted prices or simplified purchasing process. While this may strengthen the value proposition for some customers, we need to be mindful of the consumption nature of these models and carefully assess any potentially negative implications it has for its customers.</li>
</ul>
There is still a lot to learn about digital savings circles and we are eager to see more stakeholders experimenting with solutions all over the world.  The size of the global unbanked population indicates the need for alternative savings models that have the appeal of traditional, informal, socially-appealing methods but are done with greater benefit and efficiency. However, serving traditional savings circle users digitally requires immense behavior change for users, so we expect companies to need to innovate along several dimensions of the model.

As a result, we are excited to see how a broader area of stakeholders – donors, startups, existing financial institutions, telecommunications players — can come together and create innovative solutions to expand access to savings for base of the pyramid customers. While there may be a market for fee-for-service savings circle startups, we are eager to see other types of players get involved in this space and experiment. For example, the models that may have the best chance to scale might be tied to existing financial products rather than as a standalone offering. Rather than provide a savings circle on its own, providers instead could use savings circles to increase customer engagement with or as an activation tool for a broader set of products, such as bank accounts or credit cards.

Savings circles are an important tool for millions of customers around the world, and we believe that there is an opportunity to leverage this tried and true model to improve access to savings, whether through a startup or other consortium of players.

Digital savings circles: Challenges and the road ahead

Just after lunch on a recent afternoon in Piñipampa, a rural village 22 miles outside of Cusco, Peru, Fausta Challco joins me as I enter the home of an artisan tile maker. She’s wearing a uniform: leather shoes, skirt, sweater, and jacket. She shakes my hand and introduces herself, panting, her brow glistening with sweat despite the crisp mountain breeze. She then turns to the tile maker and his wife and says something in Quechua. They pull up a few chairs and invite me to sit down. I’m here to interview clients of Accion microfinance partner <a href="http://www.credinka.com/" target="_blank" rel="noopener noreferrer">Credinka</a> and learn about their experience using formal financial services. Fausta is a savings promoter who will take me to meet a few clients in the afternoon. When we finish the conversation and get back in our car, I ask Fausta how she got into this line of business.

She looks at me straight in the eye and answers: “Disobedience.”

As we drive up a bumpy dirt road on the side of a hill, we leave behind a cluster of houses, their terra-cotta tile roofs ablaze in the afternoon sun. Fausta points out the car window and says, “I’m 46 and this is where I’ve spent my whole life. Almost every family here makes a living producing tiles. And that’s what my husband and I did until a few years ago, when I became a Credinka employee.”

“Doña Fausta,” her colleague says, tapping her shoulder, “tell him how you went from Credinka client to Credinka employee.”

She holds onto the front seat as the car jostles over a pothole. “All right,” she says. “We have some time.”

Her trajectory starts in November of 2005, with the arrival in Piñipampa of a man who invited Fausta to a “cup of milk” meeting — a meeting of mothers at teatime — to discuss family finances and the importance of savings. The man was a representative of the Cusco-Puno Corridor, a government-run, $30 million (USD) project funded primarily by the International Fund for Agricultural Development, with the objective of raising the incomes of the rural poor in the main road network between the cities of Cusco and Puno. A specific goal of the project was to promote savings among rural women. This took the form of incentives for opening and maintaining personal accounts at formal financial institutions in the region (Credinka in Cusco and Caja Los Andes in Puno).
<h2>Learning about savings</h2>
Fausta attended the meeting and was asked to gather a group of mothers who would commit to taking financial education classes and then opening savings accounts. When Fausta went home after that meeting, she told her husband all about the project. She was excited by the idea of learning money management skills and financial planning. She wanted to save to purchase a car. She had dreams. But he was dismissive, claiming that those meetings were scams to take people’s money. He cited the example of a bank that had gone bankrupt in the ’90s and in the process had taken away people’s money. “Plus,” he said, “those town gatherings are a breeding ground for gossip.”

Fausta pushed back. She had learned that banks were required to carry deposit insurance, so her money would be safe even if the institution went under. He did not budge. “You can go ahead,” she recounts him saying, “but if you lose the money, you’ll have to find a way to pay us back.”

<img class="aligncenter size-full wp-image-357" src="http://blogs.accion.org/wp-content/uploads/2015/01/Fausta-village-savings-promoter-for-Credinka-Accion-partner-in-Peru.jpeg" alt="Fausta-village-savings-promoter-for-Credinka-Accion-partner-in-Peru" width="800" height="533" />

Within a few days, Fausta mobilized 35 women to form a savings group. In the end, only 22 participated, many discouraged by husbands who were either jealous or skeptical about the project.

Public mistrust of banks is widespread in Peru and across Latin America, whose unstable economies have had disastrous consequences for the financial systems over the past few decades, often causing great damage to people’s financial situations.

Like many Peruvians, Fausta remembers September 6, 1988, with a mix of disbelief and sadness. On that day, at the height of an economic crisis, Economy Minister Abel Salinas addressed the nation to announce a tough anti-inflation program that doubled basic food prices and devalued the national currency. The package went into effect immediately after Salinas’s announcement. That month’s inflation rate reached 114 percent. By year-end, it soared to more than 1,000 percent. Fausta’s mother, who kept her savings inside corn sacks and under her mattress, lost everything. In a matter of days, if not hours, her hard-earned money was as good as nothing.

So when Fausta was presented with the opportunity to learn about financial education and the promise of safe savings, her heart leaped. She wasn’t going to let her husband stop her. A few short weeks after that first “cup of milk” meeting, Fausta and the 22 women formed a group and she was elected group leader. She attended the meetings religiously — often rushing to complete all of her chores and helping her husband with their tile-making activities in order to assuage his discontent with her involvement.

“Working with the group gave me confidence,” Fausta explains. “I learned to administer money and not always rely on my husband’s pocket.”

Part of her role as leader was to collect each member’s monthly contributions and travel to Credinka’s branch in Cusco to make the deposits. “I would take two buses to reach the bank, fill out slips, wait in line, and talk to the teller. It occurred to me that many of the women in my group had never seen the inside of a bank. From then on, I started bringing them every month, one by one, and showing them how to do the transactions by themselves.”

<img class="aligncenter size-full wp-image-358" src="http://blogs.accion.org/wp-content/uploads/2015/01/Fausta-and-client-portrait-of-savings-promoter-for-Credinka-Accion-partner-in-Peru.jpeg" alt="Fausta-and-client-portrait-of-savings-promoter-for-Credinka-Accion-partner-in-Peru" width="800" height="533" />
<h2>This money is mine</h2>
But after saving for several months, Fausta realized that her balance remained very small. “At the time I wanted to buy a car,” she says. “The interest I earned was barely enough to buy a loaf of bread.”

So she decided to put her money into a fixed-rate savings account for six months. She told her husband that she wanted to pool her cash with his in order to earn a higher return, but he said no. She did it anyway.

“I took the money he had at home and hopped on the bus to Cusco. When I got to the bank, I hesitated. I couldn’t believe I had just disobeyed my husband. It was already bad enough that I’d been participating in these meetings against his will, but now I might be crossing the line. But I thought and thought and then stepped into the bank and did it.”

At this point, Fausta’s eyes widen. She covers her mouth. “I was so terrified that he would find out. Every month that went by I felt a little more relieved, but I always feared, what if he asked me about his money?”

At the end of the six months, Fausta invited her husband to go to Cusco on a date. When they got there, she asked him to make a quick stop by the bank.

“What are we doing here?” he asked. “Just give me a few minutes,” she answered. “I want to show you something.” She withdrew the balance on the savings account and divided it into three piles: his initial sum, hers, and the interest earnings. “This money is yours,” she said, handing him back his original amount. “This money is mine,” she added, pointing to her initial contribution. Then, she pointed at the interest pile and said, “And this money is mine, too.”

<img class="aligncenter wp-image-360 size-large" src="http://blogs.accion.org/wp-content/uploads/2015/01/Fausta-savings-promoter-and-client-in-rural-Peru-Credinka-Accion-partner-1024x683.jpeg" alt="Fausta-savings-promoter-and-client-in-rural-Peru-Credinka-Accion-partner" width="1024" height="683" />
<h2>No Faustian bargain</h2>
Unlike the medieval legend of Faust, who makes a contract with the devil in return for worldly gains, Fausta’s goals were much humbler: she wanted to improve her life and those of her children. And she thought that prudent financial management, combined with hard work and savings, could get her family there. Her husband had been a heavy drinker and sometimes was not around to help with some of the hardest tasks of their tile-making business, such as when a delivery of firewood arrived once and she had to unload the whole truck by herself. If she could purchase a vehicle, she thought, their business and quality of life would improve.

In the few years since forming that first savings group, Fausta continued to enroll women from her village and from surrounding ones into the Cusco-Puno Corridor savings project.

By 2008, Fausta heard that the project was coming to an end. She contacted the government representative who had recruited her years earlier to tell him how much she had enjoyed the experience and how important she thought that projects like these remained active.

He asked her for a phone number and told her to give him a couple of days. Eventually, she received a call from someone at Credinka inviting her to a meeting in Cusco. When she arrived at the meeting, she was presented with an employment contract.

“I thought I was going to be offered a loan to buy a car,” she says. “Never did I imagine that I would be offered a job. I got so nervous I didn’t know what to do, so I didn’t sign the contract.”

Instead, she went home and told her husband, who, to Fausta’s surprise, encouraged her to accept the offer. “Don’t be silly,” he said. “You like this so much and have put so much effort into it. Just take the job.”

So she did. “I was so proud of being offered a job,” she says. “I felt so important.”
<h2>From client to employee</h2>
Marina Orccohuarancca is Credinka’s head of microcredit and microsaving products, and Fausta’s boss. “Fausta was one of six women we hired in 2009 to raise awareness and teach rural women about the formal financial system. Until then, only small NGOs did this kind of work. It was the first time a formal, regulated financial institution reached out to this segment of the population.”

That was the case in part because those populations are geographically and culturally isolated. “Until 2002, only the security guards spoke Quechua,” Marina says. “Now, about 60 percent of the branch staff in rural areas speak Quechua.”

Credinka currently has a team of 14 women doing this work in a region that has expanded well beyond Cusco-Puno to include several more provinces in the southwestern part of the country, where development projects such as the Cusco-Puno Corridor had never reached.

<img class="aligncenter wp-image-361 size-large" src="http://blogs.accion.org/wp-content/uploads/2015/01/Fausta-savings-promoter-for-Credinka-Accion-partner-in-Peru-1024x683.jpeg" alt="Fausta-savings-promoter-for-Credinka-Accion-partner-in-Peru" width="1024" height="683" />

Not too long after accepting the job, Fausta took a loan from her employer and purchased a truck. Her husband uses it to provide transportation services among the surrounding villages. They’ve also opened a minimarket. Their tile business is still going strong. They have even hired employees to manage production, so Fausta’s husband no longer needs to spend so many hours doing the heavy work. He now does sales and deliveries.

Fausta has flourished at Credinka. Among a long list of accomplishments, was representing Credinka at a financial innovations competition in Lima and winning. The victory was memorable because she had helped the bank improve the savings product that earned the prize; it was also her first time on an airplane. The award consisted of a vacation for two anywhere in Peru. She chose the coastal town of Trujillo and took her husband there. It was their first vacation as a couple, and his first time on an airplane too. On that trip, Fausta’s husband apologized for not having been good to her. He also thanked her for changing his life. By then, he had stopped drinking.

She has since represented Credinka on a number of projects across Peru and even in Paraguay, where she was invited to speak about the financial education work being done with rural populations in her country.

In a <a href="https://www.youtube.com/watch?v=0RNRzdSM8go" target="_blank" rel="noopener noreferrer">YouTube video posted by the Peruvian Ministry of Development and Social Inclusion</a>, Fausta’s story of success is used to illustrate the impact of the Cusco-Puno Corridor project. In the clip, Fausta is shown making tiles with her husband, tending their store, and teaching a group of women about the banking system. They gather in the common area among a few houses, sitting on wooden chairs as Fausta lectures them, pointing to a few laminated sheets hanging from a clothesline. The image is a stark difference from the idea of a formal lesson most of us would associate with education. But given the realities of rural communities like Piñipampa — which is so similar to other villages throughout the developing world — such rudimentary methods hold the promise of making an immense difference in the lives of people who would otherwise have no chance at economic opportunity.

By the end of the project in 2008, more than 7,400 women had opened savings accounts – an extraordinary number, considering the initial goal of just 2,000. Today, Fausta not only continues to mobilize women in rural villages in the area, but she also conducts financial-skills training classes, including how to open and maintain accounts and about savings, compounding interests, financial planning, how to interpret bank statements, and more. Her three children have gone to college.

“All the sacrifices I made,” she tells me as we arrive at the next client’s house, “were validated for me when my children once said, ‘Mom, if you’ve made it this far, we’re going to have to do better than you.’”

Disobedience and savings: How one woman changed an entire village in Peru

Credinka