Focus on Clients, not Growth, says new Accion Report on Financial Inclusion
A new report on Financial Inclusion issued by Accion in partnership with Citi and Visa is a launchpad for their new campaign - FI2020 - which will try to unite the private sector, governments, and NGOs to “accelerate” financial inclusion.
“Over two billion people worldwide lack access to basic financial services, missing out on opportunities to contribute to their countries’ growth,”
said Elisabeth Rhyne, Managing Director of the Center for Financial Inclusion.
At the heart of the report: A Return to Clients:
A return to clients is reflected in several of the top opportunities and obstacles identified in the survey, starting with the items that convincingly topped the chart for both opportunities and obstacles: financial education/lack of financial literacy.
“The past ten years’ emphasis on MFI institutional profit and success has been great for scaling microfinance but has also corresponded with a lack of attention to client needs and measurable client benefits beyond just repeat business,” writes Tom Coleman, an investor.
Dowser spoke with Adriana Magdas, Senior Associate, Center for Financial Inclusion at Accion, about this campaign on financial inclusion:
The report looks at financial inclusion around the world. Where do you think the greatest strides are being made to address these needs? Is there a particular part of the world that’s got the right procedure?
Financial inclusion is a relatively new concept, and no one region can serve as a perfect example of its future. Different parts of the world are making different strides, such as the employment of mobile money management in Kenya and Pakistan’s strong credit reporting and regulatory systems.
There are a few global movements—the Alliance for Financial Inclusion’s Maya Declaration and Center for Financial Inclusion’s Smart Campaign—that have the right idea and that focus on product quality, diversification beyond credit, client protection, and harnessing new technology while making global, measurable commitments an industry norm for host countries and institutions alike.
The report says that the lenders are not as keenly aware of the needs of their customers. How did this happen?
The question refers specifically to lenders. We see financial inclusion as covering the full range of services (credit, savings, insurance, payments), so we would change the question to ask about financial services providers in general.
Microfinance is a diverse global industry that, unfortunately, incurs high costs in delivering services to harder-to-reach clients, which makes a number of services unsustainable to provide.
As a result, there has been a tendency to create “one size fits all” program models, which benefit clients in the long term but can add expense and a lack of attention to specific needs in the short term.
There are innovations in the field to make these operations less costly for clients and providers alike, but any development is part of an ongoing evolution, not an established new methodology.
Many people associate financial inclusion with microfinance. However, microfinance is simply a component of it, correct? So, in layman’s terms, how would you define financial inclusion?
Microfinance as most people think of it—small loans for the poor—is just one component of a broader platform.
We define financial inclusion as a state in which everyone who can use them has access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, with respect and dignity.
Financial services are delivered by a range of providers in a stable, competitive market to financially capable clients. This vision combines quality services with outreach and necessarily includes client protection as a key component.
What role is technology playing in the effort to reach more folks? The report states that cost is a big issue for organizations and it’s very costly to reach some rural communities. So is technology helping to alleviate that problem?
Technology can, and already does, play a very important role in the effort to reach more people with financial services—if nothing else, improved back-office systems can bring down costs.
Mobile technologies like Kenya’s M-Pesa payment systems have made great inroads to rural communities—75% of the world population now has a cell phone, and that means even in rural areas, slums, and the poorest of countries, cell-phones are available.
In addition to microfinance institutions, the private sector including banks, payments and technology providers, are entering the field and are pioneering a lot of innovation both in reaching rural areas and in technology.
Challenges remain however–a lack of infrastructure hinders the development and implementation of technology in mobile banking in many countries, and limited financial capability means clients are often unaware of the extent to which they can use financial services.
While technology can significantly advance financial inclusion, it must be used safely and responsibly from the start. The right protections for clients must be in place.
The report doesn’t look too extensively at financial inclusion here in the US. But there’s a massive cash-based economy here in the US as well. Do the same problems (and solutions) apply to the American market?
Many problems are similar– financial inclusion movements in the United States and in the developing world share needs for across-the-board client protection, better financial literacy, more customized products, and new ways for excluded clients to enter the global financial system.
Interestingly, the United States has been slower than the rest of the world to adopt mobile banking and similar technologies, but as behavioral economists are increasingly interested in financial inclusion, they have begun to look at issues such as choice architecture to analyze how people can be nudged in the direction of making the right financial decision for them with the end goal of developing products that help them do this.
If MFI operators were reading this report, what would be the one point that you would want them to take away from it? What is the one change that they should implement to better financial inclusion?
We would want to note the centrality of the clients to everything we do, and thereby focus on client protection and needs, especially as those change over time.
Also critical is client education at every stage of the game from youth, who need to learn how to start a responsible financial life, to adults who can save for retirement.
(Photo Courtesy of Accion)