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					Social Intelligence



Banking
for billions
Increasing access
to financial services
Contents
Barclays Social Intelligence Series
Barclays is collaborating with independent experts to                Contributors                                                                03
build and disseminate knowledge on key global social and
environmental issues. See: www.barclays.com/sustainability           Foreword                                                                    04
We welcome your feedback. Email:
sustainability@barclays.com or write to the address below            Executive summary                                                           05
Banking for billions                                                 Introduction                                                                07
This report, written by the Economist Intelligence Unit and
commissioned by Barclays, examines the steps required
to increase levels of financial inclusion around the world. It        1        The problem                                                        09
is based on two main strands of research: first, a series of
in-depth interviews with leading experts and practitioners,          1.1	     Who	are	the	financially	excluded?	                                  10
and second, a programme of research into current levels of
financial inclusion and efforts to improve the situation around       1.1.1	   Case	study	–	gender	and	exclusion	                                  11
the world. The author of the report was Sarah Murray and
the editors were Rob Mitchell, Chenoa Marquis and Monica             1.2	     Where	are	the	financially	excluded?	                                12
Woodley. We are grateful to the many people who have
assisted with our research.
                                                                     1.2.1	   Underbanked	adults	in	the	US	                                      12
                                                                     1.2.2	   Global	access	to	loans	                                            13
Interviewees
Jacqueline Novogratz, founder and chief executive, Acumen            1.2.3	   Global	access	to	deposit	accounts	                                 13
Fund Elizabeth Littlefield, chief executive officer, Consultative
Group to Assist the Poor (CGAP) Stuart Hart, management              1.2.4	   Banked	status	in	the	UK	                                           14
professor and chair of the Center for Sustainable Global
Enterprise, Johnson School of Business, Cornell University           1.2.5	   The	causes	of	underbanking	in	the	UK	                              15
Vidar Jorgensen, president of Grameen America Bridget van
Kralingen, microfinance initiatives, IBM Jyrki Koskelo, vice          1.3	     What	prevents	financial	inclusion?	                                 16
president for Europe, Central Asia, Latin America and the
Caribbean, and global financial markets, International Finance
Corporation (IFC) Martin Holtmann, head of microfinance,              2        Towards a solution	                                                19
International Finance Corporation (IFC) William Reese,
president and chief executive officer, International Youth            2.1	     Banking	in	Africa	                                                 20
Foundation Julie Katzman, general manager, Multilateral
Investment Fund Veronika Thiel, researcher, New Economics            2.1.1	   The	growth	of	microfinance	investment	vehicles	                     21
Foundation Kadita Tshibaka, president and chief executive
officer, Opportunity International Mary Ellen Iskenderian,            2.2	     Beyond	credit	                                                     22
president and chief executive officer, Women’s World Banking
David Morrison, executive secretary, United Nations Capital
                                                                     2.2.1	   Case	study	–	employment	first	                                      23
Development Fund (UNCDF) Andrew Devenport, chief                     2.3	     Technology:	making	critical	connections	                           24
executive, Youth Business International Dr Gerhard Coetzee,
general manager, Micro Enterprise Finance, Absa                      2.3.1	   Wizzit	banking	and	payment	transactions	                           24
This report was prepared in good faith by the Economist              2.3.2	   Mobile	phone	versus	bank	accounts	in	selected	countries	           25
Intelligence Unit (EIU). Neither the EIU nor Barclays Bank
PLC, nor their employees, contractors or subcontractors,             2.3.3	   Case	study	–	the	regulation	challenge	                             27
make any warranty, express or implied, or assume any legal
liability or responsibility for its accuracy, completeness, or any   2.4	     Achieving	financial	literacy	                                       28
party’s use of its contents. The views and opinions contained
in the report do not necessarily state or reflect those of the
                                                                     2.5	     Tapping	into	remittances	                                          29
EIU or Barclays Bank PLC. Barclays Bank PLC is authorised            2.6	     Case	study	–	from	government	to	people	                            30
and regulated by the Financial Services Authority and is a
member of the London Stock Exchange. Barclays Bank PLC               2.7	     The	role	of	policymakers	                                          31
is registered in England No. 1026167. Registered office: 1
Churchill Place London E14 5HP.

                                                                     3      The conclusion	                                                       32
                                                                     3.1	 How	the	credit	crisis	has	affected	microfinance	                         33
                                                                     3.1.1	 Finance	generates	wealth		                                            33




                                                                                                                              Social Intelligence 03
banking for billions: increasing access to financial services




Foreword



In the many communities where Barclays does business, we have found that the most vulnerable people
in society are often those who also have the most limited access to financial services. Access to banking and
savings accounts, credit and insurance are essential for enabling economic activity. The critical issue is how to
extend financial inclusion to more of the world’s population.
  Barclays commissioned the Economist Intelligence Unit to provide an overview of global access to financial
services today and explore future prospects. Its findings are contained in this report. The World Bank
estimates that in some countries, fewer than 10 per cent of people have access to financial services of any kind.
As this report shows, the repercussions of financial exclusion are just as evident in developed countries; life is
harder and more expensive for those who cannot use a bank account to manage payments, or save securely or
build a credit record to get a loan at competitive rates.
  At Barclays, we have focused our attention on increasing access in both developed and emerging markets.
We are developing dedicated products and services, as well as working in partnership with other organisations
that provide affordable alternatives, for those who cannot access mainstream financial services.
  Our entry-level banking customer numbers are growing rapidly; in 2009, our customers in this category
increased by 16 per cent to a total of 3.2 million accounts across Sub-Saharan Africa, including South Africa,
and basic bank accounts in the UK. We are pioneering new approaches to micro-enterprise finance in South
Africa, using innovative delivery models and risk management techniques to provide services to market
traders and other underserved entrepreneurs.
  In 2009, we committed to a global partnership with the non-governmental organisations (NGOs) CARE
International and Plan International in order to accelerate access to basic financial services. This important
three-year initiative aims to reach more than 500,000 people across Africa, Asia and South America and
represents a £10m commitment by Barclays. The partnership combines their experience and understanding
of local communities with our financial expertise.
  As this research shows, efforts to increase access to financial services have succeeded in bringing many
more people into the financial system, but there is still a long way to go. Further progress will require banks
and other financial institutions working with NGOs and policymakers to create innovative solutions and a
sustainable platform to increase financial inclusion internationally. At Barclays, we will continue to invest in
initiatives to ensure that the benefits of banking reach a larger proportion of the global population.
Marcus Agius, Chairman, Barclays


04 Social Intelligence
Executive summary
A strong consensus has emerged that increased levels                  large number of stakeholders, including the private
of financial inclusion – through the extension of credit and           sector, government, policymakers and non-governmental
provision of bank accounts, savings schemes and insurance             organisations. Moreover, there are numerous barriers that
products – have the potential to reduce global poverty and            prevent further progress on financial inclusion, including: a lack
nurture economic development. this is especially true at a            of education; out-of-date regulation and policies; and cultural
time when technology is providing new, scalable delivery              mistrust of formal financial providers.
mechanisms that bypass many of the problems associated                   It is clear, however, that there is a strong groundswell behind
with physical financial infrastructure.                                efforts to improve financial inclusion. In this report, we examine
   But the picture is a highly complex one. the ability to            current trends and assess some of the main challenges and
improve financial inclusion depends on the interaction of a            opportunities. Key findings include the following:



    	
    T
	 he cycle of exclusion is                       F
                                                  	
                                               	 inancial exclusion is a global issue       could lead to further exploitation of the
    powerful and self-reinforcing              the numbers are starkest in the               unbanked, already a vulnerable group.
Poverty results in financial exclusion, and     developing world – the World Bank             others welcome the investment, seeing
financial exclusion reinforces poverty          estimates that, in some countries, fewer      any opportunity for greater financial
still further. the transaction costs of        than 10 per cent of people have access        inclusion as a good one. In the coming
being excluded are often high, because         to financial services of any kind. But even    years, institutions will need to strike a
individuals must pay extra fees as non-        in developed countries the harsh realities    delicate balance between profit-making
account holders. And, without access to        of exclusion are just as real. In europe,     and social responsibility.
deposit products, customers must store         the financially excluded range from an
savings in unsecure places, increasing         estimated one per cent of the population         T
                                                                                                	
                                                                                             	 he global economic
the risk of loss or theft. More generally,     to as high as 40 per cent in Poland and          downturn has had an impact
financial exclusion can prevent access to       48 per cent in Latvia. In the uK, about       As the global financial crisis began to
healthcare, education and employment,          890,000 people are estimated to be            develop, there were hopes that financial
all of which reinforces the poverty cycle.     unbanked, and in the us the figure is          inclusion initiatives might be sheltered
                                               about 28 million.                             from the shock to the broader financial
   F
	inancial inclusion is about                                                                sector. But it is now clear that credit
   much more than small loans                     	
                                                  T
                                               	 echnology will bear fruit,                 and funding risks now loom large for
Microcredit has helped to prove that              but will also bring challenges             the microfinance sector too. one result
the unbanked and underbanked can               Mobile telephony, smart cards and             may be a greater emphasis on savings
be worthy and reliable consumers of            electronic transfers have already made        rather than credit. But the main effect
appropriate financial services. now             huge inroads in banking. the need for         of the crisis may be that policymakers
other needs like insurance, transactional      new approaches to the provision of            are spurred to increase their efforts to
accounts, payment services, financial           finance is leading innovation and helping      promote financial inclusion.
education and savings are starting to be       to expand the reach of financial services
met by non-profits, governments and             and reduce costs for customers and               	
                                                                                                P
                                                                                             	 olicymakers need to tread lightly
even commercial banks around the world.        providers. Mobile phone technology may        Policy measures to increase financial
Meanwhile, savings – and a safe place to       present a lifeline to the unbanked, but it    inclusion can have a powerful effect,
put them – are seen by many as the most        can also be a headache for regulators,        but must be considered carefully in
critical means toward poverty alleviation      who often have difficulty keeping pace         order to prevent counterproductive
and the expansion of financial inclusion.       with innovation.                              outcomes. Policymakers’ most important
In some countries, up to 40 per cent of                                                      roles will be to: create and empower
monthly household income is saved, but            T
                                                  	
                                               	 he commercialisation of financial           the institutions and legal systems that
it has been estimated that up to 20 per           inclusion is not without controversy       support financial services and protect
cent of informal savings in rural Africa are   A growing number of financial institutions     consumers; collect information; and
lost through fire and flood.                     see the opportunity to attract new            promote competition.
                                               customers – albeit small-scale ones –
                                               through new products and services in
                                               developing countries. critics fear this



                                                                                                          Social Intelligence 05
                    banking for billions: increasing access to financial services




Gurah, eastern
Kenya, where the
mobile phone is
proving a popular
way to access
banking services


                    06 Social Intelligence
Introduction



The ability to open a bank account or take out a loan is something that many people take for granted, yet
almost three billion people in developing countries have little or no access to formal financial services.
Globally, the gap remains large too – on average, only about 26 per cent of the world’s population has access to
formal financial services, according to the World Bank. The big question for policymakers and institutions is
how to extend financial inclusion to the other 74 per cent.
  Governments and policymakers now broadly consider access to savings accounts, credit and insurance
facilities to be critical to the health of a society and essential for the expansion of economic opportunity.
  For the purposes of this paper, financial inclusion is defined as the ability to access transactional accounts,
savings accounts, loans and insurance in order to participate in the economy.
  However, while most people think of the financially excluded as existing purely within the informal
sector (economic activity that is neither taxed nor monitored by a government and is not included in that
government’s gross national product) this does not tell the whole story. Millions of factory employees work on
payroll but have no access to banking and still get their wages in cash.
  Informal channels are also associated with extortionate loan rates, barriers to saving and a lack of protection
against unforeseen calamities such as fire, theft, illness or a death in the family. In addition, they can deny
individuals the opportunity to make meaningful improvements to their livelihoods through small business
or other investments.
  Many stakeholders believe that technology will play a vital role in expanding financial inclusion
worldwide. Technology will certainly be an important factor, particularly in regions such as Africa, where
mobile telephone penetration has expanded more rapidly than physical banking infrastructure. Mobile
banking has also proved successful in countries such as the Philippines and South Korea. It is highly unlikely,
however, to be a panacea, as access to transaction services does not equate to access to full banking services.
  In this report, we examine the financial inclusion story as it now stands, both in developing and developed
countries. We then look at examples of initiatives designed to address the problem from around the world,
and assess the most promising approaches from both the private and public sectors. Finally, we consider what
the next wave of innovations in targeting exclusion might bring.




                                                                                           Social Intelligence 07
banking for billions: increasing access to financial services




08 Social Intelligence
1.
                     financial inclusion




The problem:
in both high and low
income countries,
not having access
to savings accounts
and loans stifles
business and
exacerbates hardship

               Social Intelligence 09
banking for billions: increasing access to financial services




who are
the financially
excluded?
Financial exclusion and poverty                 the unbanked will often find it more      time,” says vidar Jorgensen, president
are linked in a self-reinforcing cycle.      difficult to access other services, such     of Grameen america, a non-profit
individuals who work in the informal         as healthcare, education and even           microfinance organisation. “When you
sector have incomes that are often           employment. this leaves them without        don’t have a cheque account, you have
unpredictable and unreliable. even a         access to the tools and opportunities       to do a lot of running around just to
small crisis, such as injury or illness,     that are necessary to pull themselves       make payments.”
can quickly lead to significant financial      out of poverty and become part of              Moreover, payments that are not
problems. debts escalate and may be          the real economy. “the impact is            made through traditional means can
serviceable only by selling household        tremendous when it comes to just the        often be more expensive, which again
possessions or paying extortionate           basics of life,” says Kadita tshibaka,      reinforces the cycle of poverty. “there’s
interest rates charged by illegal or         president and chief executive of            an annual poverty premium of about
unofficial lenders. “in times of crisis –     opportunity international, one of the       £1,000 in the uK,” says veronika thiel,
such as the current global economic          world’s largest and longest established     a researcher in the access to Finance
downturn, or when global food prices         networks of microfinance institutions.       team at the new economics Foundation,
spiked – borrowers often have to make        “We’re talking about being able to          a think-tank. “everything becomes
the choice between putting food on the       feed oneself, send children to school,      more expensive if you don’t have a
table and repaying the loan,” says Mary      have shelter, have affordable healthcare    bank account.”
ellen iskenderian, president and chief       – everyday needs depend on financial            the lack of a bank account can even
executive of Women’s World Banking.          inclusion.”                                 hinder employment prospects. some
“often, they will choose to repay the           these are not issues that are            companies may be reluctant to take
loan because access to capital is still      exclusive to developing countries. in       on an individual to whom they cannot
so constrained and they have so few          Western economies, where food and           make automated credits because they
options.” the need to repay lenders          shelter are often taken for granted, life   will have to make complex alternative
reinforces poverty because, in many          is much harder and more expensive for       arrangements for payment of their
cases, borrowers will be forced to sell      individuals without access to formal        salary. perhaps less overtly, companies
vital assets, such as the family business,   financial services. “the problem with        may also be suspicious of employees
just to generate cash for the loan.          poverty is that it takes up all your        who lack access to banking services.




£1,000
The estimated additional annual costs for
UK individuals without a bank account
10 Social Intelligence
                                                                                                          financial inclusion




caSe STUdy
gender and exclusion
Financial exclusion rates are generally higher for               some african countries, women have no formal property
women than for men. in Zambia, for example, 68.4 per cent of     rights and are barred from having land titles. this gives
women are financially excluded compared with 64.4 per cent        them no collateral with which to secure a bank loan; if their
of men, according to Finscope, a survey of financial inclusion    husband signs for the loan on their behalf, their autonomy
conducted by the FinMark trust. efforts to improve financial      may be curtailed. Moreover, many cultural and family
inclusion, for example through the provision of microfinance,     restrictions remain in place. in Malawi, for example, a wife
have often been targeted at women. the fact that one of the      whose husband dies has to surrender her possessions –
world’s leading microfinance institutions is called Women’s       including all financial assets – to his family.
World Banking is symbolic of the role that gender plays in           “it’s a tangle of issues when you talk about women’s
financial exclusion – it is estimated that women make up some     economic empowerment,” says the WWB’s Ms iskenderian.
80 per cent of the world’s microfinance clientele.                “For example, savings are quite often a positive force in
   in many countries, the financial exclusion of women            women’s lives. However, it’s not just about the finances
has been enshrined in law. regulations such as those that        or economics – there’s a whole set of other things.” to
bar a woman from opening a bank account without her              illustrate this point, she cites the example of women who
husband’s permission were once commonplace. “in the mid-         take out micro-loans with a compulsory savings component
1980s, we saw a lot of countries, particularly those colonised   attached to the account. this can create problems for
by the French, moving away from napoleonic law under             women when their husbands get wind of the savings. “He
which women were considered in the same categories as            would force, often with physical violence, the women to
minorities and the mentally distressed,” explains Jacqueline     withdraw the savings and pay down the balance rather than
novogratz, founder and chief executive of acumen Fund,           continuing to save,” she says.
a new York-based non-profit venture fund that uses                    in some countries, it remains difficult or culturally
entrepreneurial approaches to tackle global poverty. “that       unacceptable for a woman to work, let alone to take out a loan
has changed from a structural perspective quite radically        and start a business. “in some cultures, women aren’t expected   Boarded-up houses
                                                                                                                                  in Detroit, usa,
throughout the world.” today, many of these regulations          to leave the household,” says Ms novogratz. “so you might        showing that
have been altered, but this historical precedent has left a      have perfect regulation at the financial institution level, but   financial exclusion
                                                                                                                                  is an issue in the
legacy of gender-skewed exclusion.                               need a different way of accessing those women who aren’t able    West and not just the
   even more problematically, some restrictions persist. in      to walk through the streets.”                                    developing world




                                                                                                   Social Intelligence 11
                         banking for billions: increasing access to financial services




                         where are
                         the financially
                         excluded?
                         While the highest proportion               part of migrant communities: “to get a        and other service providers, such as
                         of the unbanked live in the world’s        loan in this country, you need income         cheque cashers and payday lenders.
                         poorer countries, financial exclusion       and collateral, and our customers have           one problem often encountered
                         is also a widespread problem in more       neither regular income nor collateral.”       in attempts to assess the scope of
                         developed economies. the financial          immigrant status, demographic                 the problem is that estimates of the
                         crisis has exacerbated this situation,     divides such as age, and economic and         numbers of financially excluded are not
                         as many households have found              employment status, all contribute to          consistent. in the Us, some 106 million
                         themselves unable to refinance their        the problem.                                  individuals are underbanked, according
                         mortgages or access loans to buy               And while the rate of access to           to the Center for Financial services
                         household goods. “our customers            financial services may be considerably         innovation (see chart below). however,
                         are excluded all the time, regardless      higher in developed countries, many           the Federal Deposit insurance
                         of the credit crunch – this is business    households remain underbanked – that          Corporation, which protects deposits
                         as usual for them,” says grameen           is, lacking an account at a mainstream        in Us bank accounts, estimates that
                         America’s Mr Jorgensen. Many of the        financial institution, or using a              there are 28 million unbanked and 45
                         Us’s unbanked individuals, he adds, are    combination of mainstream banks               million underbanked people in the Us.



                        Bank account ownership
                         a survey of underbanked adults in the US

                                   Do you currently have                      If you do not currently have a              If you have not had an account
                                     a bank account?                     bank account, have you had an account         in the last six months, have you ever
                                                                                  in the last six months?                       had a bank account?

                        100                                        100                                           100

                                                                                                      83%
                        80                                          80                                           80


                        60                                         60                                            60
                                 49%                       51%                                                             0%                      48%
                                                                                                                                        48%
                                             41%
                        40                                          40                                           40

    source: ‘the CsFi
        underbanked                                                            17%
     consumer study:    20                                          20                     13%                   20
        Underbanked
  consumer overview
          and market
segments fact sheet,’     0                                          0                                            0
      CsFi, June 2008          checking savings            none              checking savings         none              checking savings            none

                         12 Social Intelligence
                                                                           financial inclusion




Global access to credit
the number of bank loans in a country correlates to economic development




                                                                                                bank loans
                                                                                                per 1,000 adults

                                                                                                     50.0 or fewer
                                                                                                     50.1- 300.0
                                                                                                     300.0 - 800.0
                                                                                                     800.0 or more
                                                                                                     No data

                                                                                                source: Consultative
                                                                                                group to Assist the
                                                                                                poor (CgAp)




Global access to savings
the number of deposit accounts in a country correlates to economic stability




                                                                                                deposit accounts
                                                                                                per 1,000 adults

                                                                                                     500.0 or fewer
                                                                                                     500.1- 1,000.0
                                                                                                     1,000.1 - 2,000.0
                                                                                                     2,000.1 or more
                                                                                                     No data

                                                                                                source: CgAp




Seven countries have fewer than
                                                                                                1
                                                                                                  ‘the CsFi
                                                                                                underbanked
                                                                                                consumer study:
                                                                                                Underbanked

100 deposit accounts per 1,000 adults                                                           consumer overview
                                                                                                and market
                                                                                                segments fact sheet,’
                                                                                                CsFi, June 2008


                                                                      Social Intelligence 13
                            banking for billions: increasing access to financial services



   2
      Financial Services      Across Europe, the figures vary widely          Commission. In the UK, the extent of the   the banked by demographics and also
           Provision and
Prevention of Financial     by country, with financial exclusion              problem is such that the government        explain the reasons behind individuals’
   Exclusion, European      applying to one per cent or less in              launched a Financial Inclusion Task        unbanked status. In October 2007, the
           Commission,
   Directorate-General      Denmark, Belgium, Luxembourg, and                Force in 2005, which is charged with       government renewed its commitment to
       for Employment,      the Netherlands while in Poland, the             monitoring government progress             the issue with a new Financial Inclusion
       Social Affairs and
  Equal Opportunities;      figure is 40 per cent and in Latvia,              and making recommendations. The            Fund of £130m to cover the period
Inclusion, Social Policy    48 per cent, according to the European           following charts show the breakdown of     between 2008 and 2011.
 Aspects of Migration,
 Streamlining of Social
  Policies, March 2008




                            Banked status
                            marginally banked/fully banked status by various demographic subgroups in the UK (%)


                                                                  all   7                                                                                  93



                                                            England     7                                                                                  93
                             country




                                                            Scotland    8                                                                                 92
                                                              Wales     10                                                                                90



                                                                Men     5                                                                                  95
                             sex




                                                            Women       9                                                                                  91



                                                               18-24    5                                                                                  95
                                                               25-44    3                                                                                  97
                             age




                                                               45-64    7                                                                                  93
                                                                 65+    24                                                                                 76
                             HH income




                                                                        16                                                                                84
                                                          £10k-£20k     7                                                                                  93
                                                              £20k+     1                                                                                 99



                  key                                owned outright     6                                                                                 94
                                              owned with a mortgage     1                                                                                 99
                             tenure




   Marginally
     banked                                          privately rented   5                                                                                  95
                                                      socially rented   21                                                                                 79
 Fully banked
                             working status




    Source: ‘Access to
  financial services by                                      working      2                                                                                98
         those on the
  margins of banking,’                                  not working     13                                                                                 87
        British Market
     Research Bureau                                          retired   15                                                                                 85
       (BMRB), 2006




                            14 Social Intelligence
                                                                                                                       financial inclusion




Underbanking causes
reasons behind unbanked individual status in the UK

 Base: all Respondents without an active Bank account                             n = 431

         Reasons outside Respondent’s contRol                                                           33%

           Refused by bank/BS due to uncreditworthiness                           11%

 Refused by bank/BS due to lack of adequate proof of ID                 3%

                                   Don’t have enough money                                  20%

           Reasons within Respondent’s contRol                                                                                           68%

                     Prefer to use Post Office Card Account                              19%

                             Rely on using partner’s account                            19%

                        Prefer to manage cash-only budget                               18%

                                    Never needed an account                         15%

                                          Use savings account                7%

  Rely on bank account of someone other than a partner                 2%

                                                  Other reason                          19%


   The Treasury-sponsored UK Financial        exclusion, and two million people are                  Levels of financial exclusion also tend
Inclusion Taskforce is trying to reach two    unbanked4. In developing countries, the             to increase with age. Governments facing
groups it has identified as marginally         proportion of financially excluded rises             ageing populations must ensure that
banked: individuals who do not own (either    dramatically. The World Bank estimates              older age groups continue to have access
solely or jointly with a partner) a current   that in some countries fewer than 10                to financial products that are appropriate
account or basic bank account (although       per cent of people have access to formal            for their stage in life. One problem is
they may have a post office card account or    financial services. In Cambodia the figure            that financial products can exclude the
a savings account) and households in which    is 20 per cent, in Ghana 16 per cent, in            over-50s, many of whom remain active for
a bank account is not available, or is not    Nicaragua and Tanzania just 5 per cent.             far longer than their parents did. Another
used for day-to-day money management.             Despite economic progress in many of            issue is that an expanding population of
   The taskforce’s fourth annual report,      these regions, financial inclusion remains           older people will include more individuals
published in December 2009, found that        unevenly spread. The difference in the              with physical and cognitive difficulties,
about 890,000 individuals in 690,000          extent of financial inclusion between                making it harder for them to access some
households do not have access to a bank       developing countries can be striking. Some          financial products.
account of any kind, down from 2.1 million    African countries have relatively high rates           A recent report by Age Concern5, a UK
individuals in 1.4 million households the     of inclusion: for example, 47 per cent of the       charity, identifies a number of obstacles
year before. This sharp reduction may be      population of Botswana and 39 per cent              that may prevent people from buying the
as much to do with the way the taskforce      of Gabon has access to financial services,           types of financial products that will suit
counts the unbanked as any actual             while the figure for South Africa is 63 per          their needs in later life. These include
reduction. Whereas previous surveys           cent – a considerably higher proportion             technological and cultural barriers for
included people who did not state whether     than in many other Sub-Saharan countries.           those who may be wary of buying financial       3
                                                                                                                                                   Access to Financial
                                                                                                                                                 Services by those
they had a bank account or not, the most          Financial exclusion is unevenly spread          products over the internet, and financial
                                                                                                                                                 on the Margins of
recent survey only counted those who          within countries as well. There tends to            barriers such as high premiums for             Banking, prepared for
                                                                                                                                                 the Financial Inclusion
positively affirmed they did not have an       be a significant rural-urban divide, with            individuals over a certain age.
                                                                                                                                                 Taskforce by BMRB
account. When respondents who did not         financial institutions facing a significant              Some older people also face physical        Social Research,
                                                                                                                                                 November 2006
state whether they had an account were        challenge in reaching remote rural                  barriers that restrict access to financial
included, the number of unbanked was          populations. The distinction between                services, such as when branch visits are       4
                                                                                                                                                   Financial Inclusion:
                                                                                                                                                 The Way Forward.
1.85 million, rather than 890,000.            the formal and informal economies can               required. The UK’s Financial Inclusion Task
                                                                                                                                                 HM Treasury,
   Meanwhile, the Financial Inclusion         often be somewhat blurred. For example,             Force found that 10 per cent of people over    March 2007
Centre, a British think-tank, estimates       some workers may be employed on lawful              the age of 65 were likely to find it difficult   5
                                                                                                                                                  An Inclusive
that more than five million households         terms but be paid in cash without formal            to use ATM machines, compared with just        Approach to Financial
                                                                                                                                                 Products, Age
are seriously affected by financial            payslips or proof of income.                        one per cent of 16-24-year-olds.
                                                                                                                                                 Concern, 2009



                                                                                                               Social Intelligence 15
banking for billions: increasing access to financial services




what prevents
financial
inclusion?
The image of The financially
excluded as poor individuals living on       The vastness of africa
one or two dollars a day who are forced      reaching Africa's remote populations is the challenge
to keep their money under a mattress
and borrow from loan sharks is a vastly
oversimplified one. The factors behind
the inability to access formal financial
services are not always obvious.
    “one simple but widespread problem                            United States of America
is lack of an iD because [at a minimum]                               9,372,180 sq km
it’s what you need to have a bank                                                                               India
account,” says David morrison, executive                                                                  3,166,830 sq km
director of the United nations capital
Development fund (UncDf), which
                                                   Argentina
invests in the world’s least developed          2,766,889 sq km
countries. in many developed countries,
where it’s routine to present a driver’s
licence for something as simple as                                                           Western Europe
                                                                                             4,939,927 sq km
opening an account at a video rental
store, the value of that iD is often taken
for granted.                                         Africa
                                                30,301,596 sq km
    geography is also an issue. not all
topographies lend themselves to the               Other named
                                                    countries
development of traditional banking
                                                29,843,826 sq km
systems, leaving their populations
underserved when it comes to financial                                                                     China
                                                                                                     9,597,000 sq km
products. “We are investing in research
in the South Pacific because there
you have small island states where
traditional banking models don’t make
sense,” says mr morrison.




Not all topographies lend themselves to
the development of traditional banking
16 Social Intelligence
                                                                                                                financial inclusion




1 in 3,000
When the war ended in the Democratic
Republic of Congo, there were 20,000
bank accounts among 60m people. Two
years later there are still only 200,000
    Dr gerhard coetzee, general                 Unexpected disruptions to banking          to find work on a temporary basis are
manager of micro enterprise finance          services, such as natural disaster            highly unlikely to benefit from formal
at absa (majority owned by Barclays),        or war, can mean a sudden and                 financial services, and the itinerant
agrees. “africa is one of the continents     sometimes protracted shift in personal        nature of their lifestyle makes it difficult
on which it’s most expensive to serve        circumstances. Roughly half of the            for them to have consistent access to
microfinance clients because of the           UncDf’s client countries are post-conflict     basic services, such as current accounts
reality of the continent – basically, the    states – particularly in africa – in which    and savings.
main cost is geography,” he says. The        formal systems have partially or entirely        meanwhile, in more developed
situation is different in countries such     collapsed. mr Tshibaka points to the          economies, migrant workers, illegal
as Bangladesh and india, Dr coetzee          conflict in Darfur, which caused the           or recent immigrants and asylum
says, because the population density         displacement of more than one million         seekers often operate outside formal
is higher: “no one will argue that the       people, as a prime example.                   economic systems, effectively barring
methodologies of asia won’t work                The crippling effects of war on the        them from access to formal financial
in africa because we’ve seen them            availability of even basic banking services   services. in some countries, these
working in africa – but the interesting      linger long after the conflict is over, as     populations are growing. in the US, for
thing is we’ve never built up to the         has been shown in the Democratic              example, between 1970 and 2007 the
numbers in the institutions in africa        Republic of congo (DRc). “Two years           foreign-born population rose from 9.6
that you have in asia.” grameen has          ago when the war ended there was              million to 38.1 million, with immigrants
eight million clients in Bangladesh, while   a population of 60m in DRc, but only          from latin america and the caribbean
equity Bank in Kenya – perhaps the           20,000 formal bank accounts, of which         accounting for more than half of this
best-subscribed in africa, according to      10,000 were dormant,” says Jyrki Koskelo,     population (54 per cent) compared
Dr coetzee – has three million.              vice president for europe, central asia,      with 18 per cent in 1970.6
    Displaced people, whether as a           latin america and the caribbean,                 “There are recent immigrants who
result of war or natural catastrophes,       and global financial markets, at the           largely don’t trust their banks, or people
constitute large populations for whom        international finance corporation (ifc),      who have misused bank accounts
access to formal financial services           an investment arm of the World Bank.          intentionally or unintentionally and are no
is lacking. over the last decade, aid        “Today, while the market has grown at a       longer allowed them,” says mr Jorgensen
agencies have moved away from                very fast rate to 200,000 bank accounts,      of grameen america. language can also
                                                                                                                                         6
                                                                                                                                           Immigrants
treating refugees as dependants and          this still leaves most people in the          be a barrier. “it’s not just people putting   and the Current
focused on fostering self-sufficiency         country financially excluded.”                 money under mattresses and it’s not           Economic Crisis:
                                                                                                                                         Research Evidence,
among these communities – so                    Transient or migrant populations also      just driven by interest rates,” says ms       Policy Challenge
finding ways to give them access to           represent a significant proportion of the      novogratz. “it’s also driven culturally,      and Implications,
                                                                                                                                         migration Policy
the financial tools to support that self-     financially excluded. Rural dwellers in        by people not feeling comfortable even        institute, January
sufficiency has been a challenge.             developing countries who come to cities       walking through the doors of a bank.”         2009




                                                                                                        Social Intelligence 17
banking for billions: increasing access to financial services




18 Social Intelligence
2.
                   financial inclusion




Towards a solution:
banks are finding new
ways to connect with
customers, using
mobile technology,
micro-investment
models and
branchless banking.

              Social Intelligence 19
                           banking for billions: increasing access to financial services




                           Efforts havE long been made to             In the 1970s, Muhammad Yunus, a                 very low default rates, by holding the
                           address financial exclusion in developing   Bangladeshi banker and economist,               whole group collectively responsible
                           countries. from the 1950s, subsidised      started looking for a more practical            for the loan. Whenever one individual
                           credit programmes run by agricultural      way to help the poor. he made his first          was unable to make a repayment, the
                           development banks made loans targeted      transaction in 1976, lending Us$27 to           others in the groups would make up
                           at specific communities, but these were     a group of 42 villagers who needed to           the shortfall. But this rarely happened
                           not without their problems. repayment      buy raw materials for the bamboo stools         because each individual felt a strong
                           rates were usually low and many of the     they made and sold.                             obligation to the group and would
                           funds found their way to more affluent         he found that by giving loans to             consequently make every effort to
                           farmers, rather than to the very poor.     groups of borrowers he could ensure             repay their share.




                           Banking in Africa
                           providers of finance to low-income categories by number of African clients (at 2006)




                                                                                        Savings, SME
                                                                                    loans, debit & credit
                                                                                     cards, forex, mobile
                                                                                      banking, internet
                                                 Individual &                             banking
                                               group, education
                                               & housing loans,
                                              leasing, insurance       NBFIs *
                                                  & savings           2.5 million



                                                 NGO MFIs                                                   Commercial
                                                 1.9 million                                                   Banks
                              Individual &                                                                   5.6 million
                             group savings



                                                Village savings                                                                               Savings, money
                                                     & loans                                                                                 transfer, pensions
                                                     groups




                                                                                                                           Post Banks
                                                                       Credit Unions/                                       4 million
                                                                       Co-operatives
                                                                         13 million




source: ‘Diagnostic to
 action: Microfinance
      in africa’, africa                                                                                         Savings, individual
 Microfinance action                                                                                            loans, housing loans,
         forum, 2007.                                                                                              life insurance
    * note: nBfIs are
   non-bank financial
           institutions




                           20 Social Intelligence
                                                                                                                    financial inclusion




     today, the microfinance industry is a      a moneylender profiting from the poor.          comprise 42 per cent of MIv investors,
  global movement whose institutions serve     others argue that evidence of commercial       followed by retail investors at 34 per cent,
  about 80 milllion people in developing       success will encourage more enterprises        public investors at 21 per cent and other
  countries, according to the World Bank.      to enter the business of lending to            MIvs at 3 per cent. the survey predicted
  While micro-loans were traditionally         the financially excluded, and that this         that performance of MIvs would drop
  offered by non-profit, non-governmental       free market approach will increase             below 3.5 per cent by the end of 2009.
  organisations (ngos), commercial banks       financial inclusion more quickly than if            however, the number of MIvs and
  are now exploring possible opportunities     improvement efforts were left entirely in      their total assets has continued to grow
  for microfinance offerings, as seen in the    the hands of the non-profit sector.             strongly. they grew by 31 per cent in
  chart opposite, illustrating the different      Microfinance investment vehicles             2008, much slower than the 72 per
  providers of microfinance in africa.          (MIvs) are perhaps the more acceptable         cent growth of 2007, but still impressive
     the commercialisation of microfinance,     side of the commercialisation of               considering the overall economic
  however, is not without controversy. In      microfinance, and they have seen huge           picture. foreign capital investments in
  2007, Compartamos, Mexico’s biggest          growth over the past few years. MIvs are       microfinance passed the Us$10bn mark
  microfinance bank, launched a hugely          investment vehicles focused on investing       in December 2008, with more than half
                                                                                                                                             1
                                                                                                                                              MIV Performance
  successful initial public offering that      in microfinance. they provide returns           of this managed by MIvs. the survey
                                                                                                                                             and Prospects:
  divided the microfinance community.           to investors and are independent of the        found that MIvs continued to grow at an        Highlights from the
  Critics said that the bank, which was        MfIs they fund. according to CgaP’s            annualised rate of 16 per cent during the      CGAP 2009 MIV
                                                                                                                                             Benchmark Survey,
  charging interest rates of at least          2009 MIvs survey1, institutional investors,    first half of 2009 and there were very few      CGAP September
  79 per cent a year, was no better than       foundations, ngos and networks                 fund redemptions as a result of the crisis.    2009




  Growth of microfinance investment vehicles
  MIVs have continued to show strong returns despite the effects of the global recession

                                      Number of MIVs                                                        total assets growth




120                                                                                     100%


                                                                          103
100
                                                                  92                     80%
                                                                                                              72%
                                                                                                     68%
80                                                        75               80
                                                                                         60%
                                                 62
60                                                                                                                                           key
                                                                  58

                                          43                                             40%
                                                                                                                                                    All MIVs

40                               36                                                                                    31%                          CGAP Survey:
                                                          40                                                                      29%               participating
                         30                                                                                                                         MIVs
                 25
         23
                                                                                         20%
20

                                                                                                                                             source: MIV
                                                                                                                                             Performance and
                                                                                                                                             Prospects, CgaP
 0                                                                                           0%                                              september 2009
       2000 2001 2002 2003 2004 2005 2006 2007 2008



                                                                                                           Social Intelligence 21
banking for billions: increasing access to financial services




beyond credit
Microcredit is JUst one piece of                for financial inclusion, as the bulk of its        as the “forgotten half” of microfinance.
the broader financial inclusion puzzle.          population still inhabits rural areas and lives   there are several barriers to offering
increasingly, governments, donor                in extreme poverty. the 2006 Finscope             savings services, not least the substantial
organisations and others are recognising        country survey found that more Ugandan            operational costs involved in managing a
that a range of financial products –             adults used microinsurance than traditional       large number of small savings transactions
including current accounts, savings             insurance (4.6 per cent, against 3 per cent),     to which depositors want easy access.
accounts and insurance policies – is also       suggesting that microinsurance products           regulation is much stricter for organisations
critical to promoting social and economic       may be better suited to the needs of the          taking deposits, to ensure depositors’
welfare. this requires the participation of a   population. the Finscope report observes          money is kept safe. And initiatives are
whole range of stakeholders, from private       that a major stumbling block to increasing        limited by the costs and other challenges of
sector banks and the providers of general       the penetration of insurance products into        reaching customers. in Malawi, for example,
business infrastructure to governments          lower-income brackets is simply that the          opportunity international has a fleet of five
and policymakers.                               opportunity cost of channelling disposable        armoured trucks to take banking services to
    Many innovative products are now            income into insurance products remains too        rural poor.
emerging. in india, icici Bank offers           high to make it viable for the very poor, even        such challenges have led to the
insurance products to low-income and rural      with the introduction of microinsurance.          increasing popularity of community-
customers that include health and weather           still, savings accounts are what many         managed services. recognising that most
insurance, while in Malawi, opportunity         believe will be most critical to poverty          MFis tended to emphasise credit and
international has developed a weather-          alleviation and the expansion of financial         were not licensed to take deposits, VsL
indexed insurance product in partnership        inclusion. “We’ve definitively proven the          (Village savings and Loan) Associations
with the World Bank. this type of insurance     poor can be banked and can repay,” says           tried a different approach. rather than
mitigates the devastating consequences          WWB’s Ms iskenderian. “But the poor also          expose customers to credit risks, they
of drought or excess rain and also helps        save and, in many of the countries in which       intermediate small local pools of capital to
farmers to access credit, as banks that         we work, up to 40 per cent of monthly             satisfy the cash management needs of
might have been unwilling to lend to “risky”    household income is saved. so having a            individual households. the savings created
customers (farmers who would not be able        safe place to save is a tremendous need on        can then be used to offer small loans,
to make repayments if a drought destroyed       the part of low-income populations.”              providing communities that previously
their crops, for example) now see these             in the absence of deposit accounts,           were financially excluded with a first step
borrowers as creditworthy.                      individuals are forced to keep savings in         from using more risky informal savings
    Microinsurance is a risk transfer device    insecure places and risk losing them to           mechanisms to more formal financial
characterised by low premiums and               theft or disaster. some would-be savers           services. the model was launched by aid
low coverage limits, and designed for           may be inclined instead to purchase a             agency cAre international in Niger in 1991,
low-income people not served by typical         tangible asset, such as a cow. the trouble        and is now being used by almost one
social or commercial insurance schemes.         with such assets, however, is that their          million participants in Africa, Latin America
its ultimate goal, as outlined in 2008          owners may have trouble selling them              and Asia.
research conducted by FinMark trust,            or have to sell them at a loss at the time            Meanwhile, some microcredit
is “to enable the poor to mitigate their        when money is needed.                             institutions, including Bank rakyat
material risk through the insurance market          there is a huge appetite among poor           indonesia (Bri), have conducted market
in order to reduce vulnerability.” A case       populations for secure savings and related        research on the demand for savings,
study in colombia, where microinsurance         financial products. Having savings boosts          which has enabled them to build popular
is distributed mainly through two large         people’s confidence and offers them                products. At Bri’s local banking system,
co-operatives, La equidad and solidaria,        comfort. several studies have indicated that      there were about six times as many
shows that non-traditional channels can be      ownership of assets has more beneficial            deposit accounts as loans in 1997; at its
much more effective than the conventional       effects than income levels – including on         Bank dagang Bali, the ratio was 30 to 12.
broker-agent model at offering coverage in      wealth, health, and political participation.      Meanwhile, the more it learned about its
areas where there has previously been little    Mr Morrison, of the UNcdF, says that              customers’ saving needs, the more Bri
or no penetration. Between them, the two        savings are the product in highest demand         itself benefited. Between 1973 and 1983,
co-operatives account for 62 per cent of the    when peace breaks out after conflict.              the bank’s first 10 years of operation, it
country’s formal microinsurance market.             However, the demand has largely gone          mobilised Us$17.6m; between 1984 and
    Uganda presents a special problem           unmet. saving has often been described            1996 it mobilised Us$3bn.

22 Social Intelligence
                                                                                                            financial inclusion




          caSe Study
          employment first
There are Those for whom microfinance is not an option,            the whole microfinance industry was built on commercial            CGaP provides
                                                                                                                                    rural Bangladeshi
since a prerequisite for access to even the most basic financial   principles of not giving anything away,” says Ms Littlefield.
                                                                                                                                    women with grants
services is access to some kind of regular income. This group     “But finance and financial services don’t tend to create            in a microfinance
                                                                                                                                    scheme aimed
is on the lowest rung on the poverty ladder. “The excitement      economic opportunity so much as grow what already exists.”
                                                                                                                                    at people on the
around microfinance has enabled governments to feel that all          William reese agrees. as president and chief executive of      lowest rung on
                                                                                                                                    the poverty ladder
they need to do is stimulate microfinance and be done with         the International Youth Foundation, which works to strengthen
the problem,” says elizabeth Littlefield, chief executive of the   education, health and work prospects for children and young
Consultative Group to assist the Poor (CGaP), an independent      people, he argues that financial inclusion should be extended
policy and research centre housed at the World Bank and           to more young people. But 15- to 25-year-olds tend to be
dedicated to advancing financial access for the world’s poor.      unemployed (at two or three times the rate of adults over 25)
“That leaves out one billion people,” she says. To reach those    which means first helping them find a source of income that
people, CGaP is experimenting with a graduation methodology       generates the cash to be banked. “The challenge is how to get
first developed by BraC, a Bangladeshi microfinance                 more young people into some sort of sustainable employment,”
organisation. The BraC programme has “graduated” 800,000          he says. “Financial services and financial literacy are very
households from safety-net schemes to microenterprises since      important for all people, but they are a function of whether or
the programme launched in 2004.                                   not you have the money to manage.”
   CGaP asks villagers to identify groups of women they deem         Mr reese’s comment refers to young people, but carries a
the poorest in their community and then provides them with        broader point – that financial products, even informal ones, are
grants for current income (such as a chicken) and an asset        not everything. It can be argued that a steady, reliable income
(perhaps a goat that can produce baby goats, which can be         or job needs to come before a bank account and that, in some
sold) plus training in how to manage those assets, save money     communities, lending schemes are getting ahead of themselves
and eventually apply for a loan from microfinance institutions.    by developing banking options before supporting more
“This kind of programme is new and pretty heretical, because      employment opportunities.



                                                                                                    Social Intelligence 23
                           banking for billions: increasing access to financial services




                           technology:
                           making critical
                           connections
                           The rapid developmenT and                                     send money to other mobile users                                                          then, via a mobile phone banking facility,
                           adoption of mobile phone technology                           by text message. The system works                                                         be transferred to others or used to buy
                           in developing countries has vastly                            through airtime resellers, who, in addition                                               airtime. Clients receive a linked debit card
                           outpaced the implementation of costly                         to taking cash to top up mobile phones,                                                   supported by the masterCard system,
                           landline infrastructure. as a result, other                   can also load them with cash value. This                                                  which can be used almost anywhere
                           industries are now looking to mobile                          can be transferred to another user, used                                                  to draw money or pay for goods and
                           telephony to help leapfrog other types                        to pay for goods or reconverted into cash                                                 services. While Wizzit serves mainstream
                           of infrastructure-intensive systems such                      by the airtime agent at another time.                                                     customers, microfinance specialists see
                           as bank branch networks. in Kenya, for                           in South africa, Wizzit has rolled                                                     this as another possible way of extending
                           example, the m-pesa mobile money                              out a successful model through which                                                      banking services to clients who are more
                           transfer service means users can deposit                      money is deposited into a savings or                                                      remote. The chart below explains the
                           cash through their mobile phones and                          transmission account; the money can                                                       different uses of Wizzit.



                           Mobile banking in South Africa
                           how Wizzit users conduct banking and payment transactions, per month
                                                                                                                                                                                                         electronic Bank Transfer
                                                                                                                                                                                    pay Store accounts




                                                                                                                                                                                                                                    Set up debit order




   note: Figures based
                                                                                                                                                                                                                                                         Set up Stop order
                                                                                             Cash Withdrawal




                                                                                                                              money Transfers




   on average number
                                                                                                                                                                                                                                                                             Cheque deposit
                                                                                                                                                                  mini-Statement
                                                                           Balance inquiry




     of transactions of
                                                                                                                                                pay electricity
                                                                                                               Cash deposit




 each type conducted
                                                             Buy airtime




monthly, weighted by
  the number of users
 who say they conduct
                                                    Total




    them. not all users
   conduct all types of
     transactions. The
      “average basket”
  should be viewed as
                              All bAnking
       the mean usage       trAnsActions           12.8 3.7                2.7               1.7               0.8            0.8               0.7               0.7               0.5 0.4 0.4 0.2                                                                          0.1
      among surveyed
     users, rather than
   a profile of a typical
  Wizzit user. row two
 shows all transactions
                            trAnsActions
via all Wizzit channels,      using wizzit         9.3      2.6            1.9               1.3               0.7            0.5               0.5               0.5               0.5 0.4                                         0.3                  0.1                 0.1
       including mobile
      phone, aTm and
                           (All chAnnels)
partner bank branches.
row three shows only
    Wizzit transactions
                            trAnsActions
conducted via mobile         using wizzit          6.6      2.6            1.9               0.1               0.1            0.5 0.4 0.4 0.2 0.2 0.2                                                                                                    0.1                 0.0
         phone. Source:
   ivatury and pickens
                           (mobile phones)
                 (2006)


                           24 Social Intelligence
                                                                                                         financial inclusion




   mobile phones are just one of many     documentation is necessary to open         such as South africa, Kenya, Zambia
technologies now emerging that could      an account. This assists illiterate        and Uganda. “The potential is
give the financially excluded more         people by eliminating the need for         monumental,” says elizabeth littlefield,
effective methods to manage their         form filling while protecting against       chief executive of CGap. “Globally, it
money. Smart cards and other forms        fraud. in malawi, for example, where       is estimated that there are one billion
of cashless transaction devices are       tradition demands that a widow has         people in emerging markets who don’t
being seen by policymakers and non-       to surrender all her possessions to        have a bank account but who do have a
profit organisations as cost-effective     her dead husband’s family, biometric       mobile phone – so that’s a billion people
ways to broaden the reach of financial     fingerprint readers make it more difficult   right there that would like to use their
transaction services. in the maldives,    for relatives to withdraw funds from       mobile phone for banking services.” The
for example, CGap is working with the     the widow’s bank account.                  chart below shows the prevalence of
government to spread the use of debit        These and similar technology            mobile phones in africa and in a range of
cards for payments in a country made      solutions are seen by many experts         developing countries.
up of hundreds of small islands, where    as a huge opportunity to accelerate           The feedback on such services is
fishermen have to get on a boat just to    the expansion of financial inclusion,       hugely positive. “We did a survey of the
reach a physical bank branch and teller   particularly to remote and rural areas.    m-pesa users to figure out how this was
to cash cheques or deposit money.         Certainly, the concept has already         changing their life,” says ms littlefield,
   opportunity international uses         proved highly successful in many           “and 83 per cent of the respondents
biometric technology in its services,     countries, including the philippines,      said not having m-pesa would have a
which means that no identification         South Korea and african countries          large negative impact on their life.”




Using mobile phones as a banking platform
penetration of mobile phones and bank accounts in selected countries



                                  gross nAtionAl income                  mobile                           bAnked
                                     per cApitA (us$)                penetrAtion (%)                        (%)



                   mexico                 7,310                            54.71                             25

            south AfricA                  4,960                           77.06                             46

                    brAzil                3,460                           56.03                             42

                  AlgeriA                 2,730                           65.95                              31

                     chinA                1,740                            34.71                            42

               philippines                1,300                           49.18                             26                   Sources: GSma
                                                                                                                                 (regulatory
                                                                                                                                 Framework for
                     egypt                1,250                           27.35                              41                  mobile Banking).
                                                                                                                                 Gni per capita from
                                                                                                                                 World Bank (2006).
               nicArAguA                   910                            32.62                              5                   mobile penetration
                                                                                                                                 from GSma's
                                                                                                                                 Wireless intelligence.
                      indiA                720                             14.76                            48                   population banked
                                                                                                                                 from honohan (2007).
                                                                                                                                 only China and india
                 pAkistAn                 690                             32.64                              12                  show higher banking
                                                                                                                                 penetration than
                                                                                                                                 mobile penetration.
                     kenyA                 530                            19.92                              10                  rapidly growing
                                                                                                                                 mobile penetration in
                                                                                                                                 both countries means
             bAnglAdesh                   470                             15.03                              32                  that it is probably only
                                                                                                                                 a matter of time before
                                                                                                                                 they fit the pattern.


                                                                                                 Social Intelligence 25
banking for billions: increasing access to financial services




50%
The reduction in costs to banks of
delivering financial services when using
mobile banking instead of branches

   Mobile banking services can represent      operating costs and therefore lowering          One project that may prove useful
significant cost savings to the client.        the high interest rates microfinance          was launched in February 2009 by
Services like M-Pesa have driven down         institutions have to charge to cover the     the UK government’s Department for
the cost of banking for users, who no         cost of administering such small loans.      International Development. Dubbed
longer have to travel long distances to          Other problems can arise from use         FAST (for “facilitating access to financial
deposit or withdraw money, by five to 10       of antiquated systems. “One institution      services through technology”), the
times. “You can’t only look at the cost       told me that on their spreadsheet when       three-year, £1.4m project will support
to serve – that only takes account of the     they get their 500th client the first drops   the introduction of “branchless banking”
point of view of the institution – but you    off the edge – so they can’t do any          in several developing countries, and
must also look at the cost for the client,”   analysis or cross-selling,” says Bridget     track its progress. If it is shown to work,
says Dr Gerhard Coetzee, who oversees         van Kralingen, who leads microfinance         it will be rolled out more broadly. FAST
the microfinance division of Absa. “How        initiatives at IBM, which is helping the     also plans to carry out research into how
far do they have to travel to get to their    Grameen Foundation develop an open-          to spread the technology, and help to
nearest service point? How long do they       source microfinance software platform.        develop industry standards to regulate it.
have to wait in queues? What is the           The system, called Mifos, streamlines           However, technology alone cannot
opportunity cost because they are not         lending processes and cuts operational       solve financial exclusion. Although the
at their business or farm?”                   and technology costs for microfinance         adoption of mobile phones and other
   Even in South Africa, which probably       institutions. “Another microfinance           technology in developing countries
has the highest number of bank                organisation said that when they go to       has been impressive, penetration is far
branches proportionally in Africa, Dr         see donors for more funding, it takes        from universal. For those individuals
Coetzee says, it can cost 30 rand (about      them a month and a half to estimate          who do not own mobile phones or have
US$4) to get to and from a bank in            their consumption of capital,” says Ms       access to the internet, the problems of
Gauteng, a well-developed province.           van Kralingen, “so we see an incredible      financial exclusion remain, and could in
“For some clients on the eastern              demand for this.”                            fact become even more entrenched. In
seaboard it costs 70 rand to get to the          If these lower costs can be captured,     addition, technology-based solutions
bank, and that’s very costly.”                that means micro-lenders can extend          can be unreliable and subject to
   CGAP has found that mobile banking         their services to more borrowers at lower    glitches, especially in countries where
can lower the cost for banks of delivering    costs. “The big challenge over the next      technological know-how may be
financial services by more than 50 per         few years will be how to use technology      lagging behind other countries. Finally,
cent. That represents a huge saving           to reduce the costs and improve the          some commentators have argued that
to financial institutions, which may be        service,” says the IFC’s Mr Koskelo,         regulation has been slow to catch up
reluctant to invest in branch networks.       “and then by doing that come up with         with technological innovation, and
In turn, IT also has the potential to         mechanisms where it is feasible to bring     suggest that consumers may lack
transform what goes on behind the             sustainable services to a significantly       the protection they need from mobile
teller’s counter, dramatically cutting        larger segment of the population.”           payments and other services.




26 Social Intelligence
                                                                                                        financial inclusion




caSe STudy
the regulation challenge
As new technologies and payment innovations advance,           to carry out using M-Pesa because of a lack of traceable
the regulatory frameworks that are needed to guarantee         transaction records.
their fair and legal operation cannot always adapt quickly        At the end of the audit in January 2009, Joseph Kinyua,
enough. this creates new obstacles to financial inclusion.      Kenya’s permanent secretary to the treasury, said that
After all, the merchant in a small kiosk who, instead of       the audit had reassured the treasury. “i would like to
selling only batteries, cigarettes and phone airtime, is now   assure Kenyans that this innovative idea of money transfer
taking in and handing out money via customers’ mobile          through the mobile telephones is safe and reliable,” he
phones, has essentially become a bank teller.                  said, adding that the treasury and central bank would
   while it is one thing to handle simple cash transactions    continue to oversee its safety and reliability.
via mobile phone, the question is whether the merchant            other non-profit microfinance institutions are likely to
can use the same system to take deposits and sell              attract similar scrutiny, since taking deposits and offering
insurance – seen as a critical next step in mobile finance –    insurance products requires regulatory supervision. As
without being regulated as a bank.                             recognition grows that the real power of financial inclusion
   in December 2008, Kenyan finance minister John               lies in being able to offer precisely these types of products,
Michuki ordered an audit of safaricom’s mobile money           many are considering altering their legal status.
transfer service M-Pesa, which has attracted more than 6.5        some laws provide for flexibility. grameen America, for
million subscribers since its launch in 2007. the service,     example, has applied for a credit union licence so that it
which operates primarily to arrange the transfer of money      can accept savings and deposits across the Us. however,
                                                                                                                                A kiosk merchant
from one mobile phone user to another, had existed             as mobile banking and cashless transactions become               in Russia, now
                                                                                                                                effectively a bank
outside the regulatory framework. But its popularity, and      ubiquitous, the challenge for regulators is to reshape their
                                                                                                                                teller, handling
the perception that it was open to abuse, has drawn the        legislative regimes in ways that protect account holders         simple cash
                                                                                                                                transactions for
attention of policymakers keen to prevent fraudulent           but do not hamper the development of innovative ways of
                                                                                                                                customers via their
activities such as kidnapping and money laundering, easier     delivering banking services.                                     mobile phones




                                                                                                 Social Intelligence 27
banking for billions: increasing access to financial services




achieving
financial
literacy
To maximise The beneficial impact           the staff and the communities where               working with banking service providers
of microfinance products, potential         they operate.                                     to promote financial literacy.
customers must be educated about their         Problems of financial illiteracy are              Financial literacy is also of particular
relative advantages and disadvantages.     not limited to developing countries.              importance to young people. Junior
one such initiative is the Credit with     in eastern europe and Russia, a                   achievement, a global organisation
education programme, which is run by       large number of people lack proper                that promotes the education of school
Freedom from hunger, an international      understanding of savings and credit               students in workforce readiness,
development NGo. in addition to offering   and tend to mistrust banks. This is, in           entrepreneurship and financial literacy,
microcredit, the programme also offers     large part, a legacy of communism and             has a programme showing them how
its customers, who are mainly women,       the years in which the government took            to manage money and create jobs.
valuable information about business,       responsibility for all aspects of its citizens’   “Financial education is a huge part of
health and ways to improve the lives of    work and finances. “People have gone               financial inclusion and this is becoming
their families.                            for a long period of time without bank            an important part of secondary
   From the outset, the programmes are     accounts, so they are used to dealing             education,” says andrew Devenport,
run with local input and are eventually    largely in cash,” says ms Thiel at the            chief executive of Youth Business
expected to become completely locally      New economics Foundation. “Financial              international, which helps disadvantaged
owned and operated, making them a          literacy levels are low in the sense that         young people to start their own
permanent, sustainable resource for        people don’t know what a direct debit is,         businesses and works with organisations
their communities. The same staff          as it simply wasn’t useful or accessible          such as Junior achievement. “That’s
handle both the administration of the      to them.” one initiative addressing               important for us because if we work
loans and the delivery of education,       this issue in Russia is the international         with young people who don’t have any
helping to keep costs down and also        Business Leaders Forum, a UK-based                financial knowledge, we have a longer
to build a relationship of trust between   corporate responsibility scheme that is           journey to go with them.”




Trust
A large number of people lack
proper understanding of savings
and credit products
28 Social Intelligence
                                                                                                       financial inclusion




tapping
into remittances

Seven
countries in Latin America derive
over 12% of their GDP from
remittances, even though half of their
citizens do not have a bank account
FoR maNY miGRaNT workers who            around Us$62bn) was transferred             [rather than saved or invested],” says
have left families behind, part of      from the Us to Latin america and the        martin holtmann, head of microfinance
the monthly routine involves sending    Caribbean. “The numbers are huge and        at the iFC. The iDB estimates that while
a proportion of their income back       yet, until the year 2000, remittances       about 80 per cent of the funds are
home, often incurring high processing   were categorised in the errors and          used for essential daily consumption,
fees. For many years, these money       omissions section – that’s how much         the other 20 per cent could be used for
transfers have remained largely         of an afterthought they were,” says         savings or to buy insurance given the
undocumented. Recently, however,        Julie Katzman, general manager of the       appropriate banking tools.
the inter-american Development          multilateral investment Fund, which            The iFC is working with remittance
Bank (iDB) has revealed that these      invests on behalf of the iDB. “Fewer        transfer companies to create financial
remittances constitute a substantial    than 50 per cent of the people going        products, such as savings accounts
amount of money which, by and large,    into the bank to collect the [remittance]   for the recipients. The iDB has also
has not been passing through formal     money have a bank account – those           financed projects to encourage
banking systems.                        institutions aren’t offering the products   remittance companies to partner
   Remittances represent more           that the recipient needs.”                  with microfinance institutions and
than 12 per cent of gross domestic          ms Katzman and others believe that      promote the development of products
product (GDP) in seven Latin            the potential development impact of         such as cross-border mortgages,
american countries. in some countries   these funds is enormous and could be        through which migrants can use
they represent the single biggest       better harnessed if individuals could       remittances to buy property for
proportion of GDP, according to the     manage their remittances through            families at home. “The goal is not
iDB. Last year, almost Us$70bn in       formal banking systems. “Very little        just to count up the dollars but to
remittances (expected to drop 11        value is added at the receiving end,        think about what they could do in
per cent this year to 2006 levels of    because the money is just consumed          these economies,” says ms Katzman.



                                                                                                Social Intelligence 29
                          banking for billions: increasing access to financial services




                          caSe Study
                          from government to people
                          Pensions, health benefits and child support are just a               those government payments into a no-frills bank account or
                          few examples of the long list of payments that governments           a debit card that could be reloaded with cash elsewhere or
                          make to their citizens, and yet many of the recipients have no       used for other purposes,” she says. such a structure would
                          bank account into which to deposit them, particularly in less        not only connect payees to the financial system, but reduce
                          developed countries. “the numbers are huge,” says elizabeth          problems caused by fraud and human error while laying the
                          littlefield of CGaP. she estimates that only 25 per cent of the       groundwork for financial planning.
                          recipients of these G2P (government-to-people) payments                 this is already starting to happen. in brazil, for example,
                          have a bank account into which to deposit them.                      the Ministry of social Development is working to move
                             Most payments are made in person with the recipient               family payments currently made to 12 million recipients
                          travelling to the bank to collect cash from a teller. this creates   through electronic benefit cards, to another system that
                          very high transaction costs for both parties and leaves room for     uses a simplified bank account. Ms littlefield sees this type
                          human error and theft. Making these payments electronically          of initiative as one with “massive potential” for expanding
                          would serve both to reduce these losses and to create a              financial inclusion. “You can leverage the vast networks of
                          mechanism for providing poor people with basic banking               G2P safety net payments and transfer them into financial
                          services, particularly where branch networks do not exist.           assets for those people,” she says.
                          “there’s a huge potential out there to leverage the payment             a similar system has been launched by absa bank in
                          flows from government to people and create a financial                 south africa. Working with the south african government,
                          infrastructure with those payments,” says Ms littlefield.             absa launched a payments system to distribute pension,
                             electronic G2P payments are emerging in a number of               disability and child benefit payments electronically rather
                          developing countries. in a G2P programme in argentina,               than via traditional cash-based methods. the sekulula card is
Rio de Janeiro, brazil:
                          payments are transferred every month to a debit card, which          automatically credited with payments, and customers can then
  the government is       has led to a significant reduction in fraud. Deposits on to the       add funds to the card using cash or via electronic transfers.
 working to expand
  financial inclusion
                          debit card can only be made by the government and expire                the principle does not apply only to developing
  by making benefit        after one month if unused.                                           countries. in the UK, for example, the government has
       payments via
         a simplified
                             Ms littlefield believes there is potential to make such            successfully migrated benefit recipients from post offices
       bank account       systems even more effective. “imagine if you used it to put          to basic bank accounts.



                          30 Social Intelligence
                                                                                                             financial inclusion




the role
of policymakers

Policy measures to increase                 with official financial institutions. in      borrowers’ rights and responsibilities,
financial inclusion can have a powerful      mexico, for example, where only 25          investment decision-making, savings
effect, but must be considered carefully    per cent of the population has access       culture and conflict management.
in order to prevent counterproductive       to financial services, and where the            Finally, commentators often point
outcomes. even the most well-               number of branches in the country is        out the importance of being able
intentioned policy can backfire, leading     well below the international average,       to track and collect information
to unintended consequences that             banking agents are being established at     about borrowers, for transparency,
increase, rather than decrease, levels      retail outlets across the country.          accountability and as a safeguard
of exclusion.                                  more broadly, a business                 against misuse of informal systems.
   Governments play a key role in           infrastructure that supports increases      Dr coetzee of absa notes: “the two
furthering financial inclusion by creating   in the number and range of financial         areas where governments, especially in
and empowering the institutions and         institutions can be a powerful force to     africa, must really come to the party is
legal systems that support financial         improve access to finance. this could        when it comes to information on credit
services. there should be strong and        include a robust communications             use, credit registries, credit bureaux and
clear rule of law, so that lenders have     infrastructure, an efficient                 so on – because there’s a big problem
confidence in the ability of courts to       transportation system and a healthy         brewing in many countries in terms
pursue defaults and recover debts.          competitive environment that helps to       of not enough information flowing
conduct regulation of banks is also         create choice for consumers.                between lending institutions – and then
important. consumers should be                 Policymakers also have a role to         you have clients with multiple loans and
protected against abusive practices and     play in promoting competition and           the risk of over indebtedness.”
predatory lending, and have confidence       ensuring that barriers to entry for new        He adds: “you also need positive
that their data and assets are secure.      providers are not prohibitive. regulatory   information on these registries so
Financial institutions themselves           reform can help to support new market       that institutions have a better way of
should be prevented from embarking          entrants and prevent a small number of      assessing clients – and it’s very costly to
on unwise credit binges and should          incumbents from dominating a market.        create registries, so governments should
be encouraged to offer basic financial       care needs to be taken, however, not        assist in that at the beginning.”
services to the excluded.                   to introduce policy that inadvertently      the creation of credit rating agencies
   careful deregulation can help to         distorts markets.                           that are able to gather and share
improve levels of financial inclusion.          another important area in which          information about credit histories
rather than allow banking services to       governments can add support is              of individuals and companies can help
be concentrated within the hands of         education. uganda, for example, has         to increase confidence and reduce
a few institutions, governments can         established a programme of financial         default rates. this can be facilitated
enable non-traditional distributors,        extension workers, who are recruited        through the adoption of a national
such as post offices or retail commercial    at a local level to help farmers to         identification system, which makes it
outlets, to offer basic banking services,   understand and make the most                easier to track and store information
either independently or in partnership      of microfinance issues, including            about borrowers.




                                                                                                     Social Intelligence 31
3.
banking for billions: increasing access to financial services




The conclusion:
banks, allied with
public organisations,
through innovation
and education can
improve access
to financial services
and foster prosperity.

32 Social Intelligence
                                                                                                                                         financial inclusion




                            How the credit
                            crisis has affected
                            microfinance
                            Access to finAnciAl services lifts        momentum is undoubtedly gaining               Mfi sector were credit and funding risk.
                            people from poverty and fosters           speed, new questions are emerging too.        Both of these risks were much lower
                            economic growth (see chart below).           in some respects, the global financial      down the list in the 2008 survey (10th
                            With consensus growing among              crisis is likely to set back efforts to       and 29th, respectively). earlier surveys
                            policymakers, a range of public and       expand financial inclusion, particularly in    had raised hope that Mfis would be
                            private organisations are putting their   developed markets where lending has           insulated from the “real economy”, but
                            weight behind microfinance, financial       slowed considerably and access to credit      the 2009 report found that the sector is
                            education, mobile phone banking           has tightened. According to cGAP’s            waking up to the fact that it is vulnerable
                            and other initiatives. But while this     latest survey, the top risks cited by the     to shocks through financial markets,



                            Finance generates wealth
                            established Grameen clients of five or more years, living above the poverty line

                            60%




                             50%
percentage out of poverty




                             40%




                             30%




                             20%




                             10%                                                                                                                                  source: ‘Measuring
                                                                                                                                                                  the impact of
                                                                                                                                                                  Microfinance: taking
                                                                                                                                                                  stock of what we
                                                                                                                                                                  know,’ Grameen
                                                                                                                                                                  foundation (2005).
                              0%           1997           1998        1999          2000           2001            2002          2003           2004
                                                                                            year


                                                                                                                                 Social Intelligence 33
banking for billions: increasing access to financial services




credit conditions and the fortunes of      agreeable timeframe. Policymakers         status to become a bank or a credit
their customers.                           must co-operate with the private sector   union means entering the mainstream
   The crisis may perhaps lead to a        and NGOs to create innovation and a       financial system, something that many
focus on savings over credit instead.      sustainable platform for supporting       worry could hamper their delivery of the
But whatever the focus, progressive        financial inclusion.                       related social, educational and healthcare
governments and policymakers                  Perhaps the biggest challenge for      services that they provide to clients and
recognise that the more difficult           those dedicated to expanding global       their families.
circumstances facing many households       financial inclusion is how to balance         Of course, banking is of no use
call for greater efforts to increase       market-driven models that drive           without economic opportunity. It can be
financial inclusion.                        efficiency, scale and sustainability       argued that, to tackle exclusion for the
   There are significant challenges         while avoiding the “mission drift” that   very poorest, jobs and entrepreneurial
associated with policy efforts to          could result in larger loan sizes and     possibilities should be the first steps
improve financial inclusion. Even the       products designed for those moving        towards prosperity. Yet without access
most well-intentioned can backfire          up the economic ladder – leaving out      to finance, young people, migrants, low-
or have unintended consequences.           the lowest-income communities for         wage employees and entrepreneurs are
And yet it is clear that, on its own, a    which those services were originally      not able to make the most of the income
market-based solution is insufficient       designed. For institutions seeking to     they can generate or access the tools
to address financial inclusion in an        improve financial inclusion, changing      they need to unlock their full potential.




Potential
Policymakers must co-operate
with the private sector and NGOs
to create a platform for supporting
financial inclusion
34 Social Intelligence

				
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