Reading Through the Microfinance Syllabus

18 03 2013

> This post was originally written for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

Courses featuring microfinance can be found in most colleges or universities, and the development of the syllabi for these courses has begun to create a sort of “microfinance canon.” As the next generation of microfinance professionals enters the market, there are a few things that many of them have read, and a few questions that many of them have been required to consider.

I took 10 syllabi (a small sample size, admittedly) and looked for trends in what is being taught, what is being read, and what is being assigned. Here are a few things I found:

  • Guest speakers are a major part of class time. Given that microfinance is still very much practitioner (rather than academic) oriented, it is no surprise that guest speakers are used quite frequently in class time. Most, if not all, of these speakers are in top positions at well-known microfinance institutions.
  • Assignments range from case study examples, to policy briefs, business plans, and product designs. In a few of the syllabi, students were required to make presentations, including one that assigned an investor pitch in lieu of a final exam.

Beyond these content-related observations, I noticed that microfinance classes don’t seem to have an agreed-upon disciplinary “home” in academia. Classes are typically hosted in business, economics, public policy, and international relations departments. In addition (and this is probably related), professors tend to not be tenure-track academics. Often, they are involved in microfinance as practitioners in some way.

Despite this lack of an academic “home” or identity, however, microfinance classes are increasingly common. A simple Google search brought up dozens of publicly available syllabi. Compared to the offerings as early as five or 10 years ago, this prevalence is quite encouraging.

To explore these syllabi for yourself, head to the following sources:

  • Carnegie Mellon University Heinz School of Public Policy: Microfinance, taught by Tayo Fabusuyi

Image credit: Justin Sullivan/Getty Images


Bill Pay as an On-Ramp to Financial Inclusion

1 03 2013

> This post was originally written for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

A Rwandan farmer uses her cell phone to access markets for beans and maize. The Bill & Melinda Gates Foundation support this initiative of increased opportunity through enabled mobile phone usage.When we talk about “on-ramps” to financial inclusion, we are engaging with the idea that there are “entrance points” to the road that will take us to global inclusion, just as there are ways to access a highway to get people closer to their final destinations. We’ve already blogged about a number of different on-ramps: payroll loanspost office service pointssavings groups, and mobile money, to name a few.

MasterCard’s Amit Jain and Gidget Hall explore another on-ramp: electronic bill payment.

I would venture to say that most people do not find bill pay exciting. In my house, the prospect of paying bills is a subject that tends to trigger groaning and deferral.

However, Jain and Hall observe that bill payment is a financial management exercise that is common among most people, including those with no existing banking relationships. They argue that of any potential on-ramp to financial inclusion, bill pay is the most common across the world. In addition, they note that bill payment is a regularly recurring process, which, if approached as an on-ramp to financial inclusion, could contribute to a habit of efficient and effective financial management.

From a supply-side perspective, electronic bill payment has the potential to benefit a range of players including retailers, banks, billers, and aggregators. Working together, under this logic, would benefit all of the parties. For example, billers could lower their costs associated with accepting payments at their physical offices, banks could engage and acquire customers, and the government could reduce the black economy and make transactions easier to track.

On the demand side, the authors observe that paying bills electronically could benefit people who would not have to travel as far, or work in cash only, and would therefore attract clients to formal financial services. An added benefit could be the development of good financial habits. This move toward the formal financial system would initiate an engagement with other products, including other electronic payments, borrowing, investment, savings, and insurance.

Perhaps most compelling is the authors’ point that bill payment has the potential to drive lending. When bill payment is electronic, lending institutions have more data on which to base their decisions. The authors offer that in fact, in Bhuvaneswar, India, people are already applying for loans and using their bill pay records to prove their dependability and creditworthiness. Even in the absence of formal credit bureaus, such proof of responsible financial decisions could provide critical information.

For more information and to read the whole paper, visit MasterCard here.

Image credit: The Bill & Melinda Gates Foundation

The New Vulnerable Class in Latin America

8 02 2013

> This post was originally written with Sergio Guzmán for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

Some call them the lower middle class, some call them assets-poor, some refer to them as the 4-10s for their earning average of$4 to $10 per day. In a publication released this year, the World Bank called this group the “vulnerable class,” bridging the gap between a class they refer to as “poor” and the class traditionally known as the “middle class.” Two of the lead authors on the publication, Dr. Augusto de la Torre and Dr. Julián Messina, presented their findings at a recent event at the Inter-American Dialogue, a forum for research and conversation centered on Latin America.

The authors distinguish between two economic strata. The first is the vulnerable class, which is above the poverty line, but is still in danger of losing their discretionary income. The second is the middle class, which is firmly above the poverty line, and is unlikely to lose their discretionary income. The vulnerable class is defined by a narrow dollar range—only $4 to $10 per day. Despite this narrow income definition, in the last decade this class has grown to now contain the highest proportion of the Latin American population when compared to other economic classes. (The same phenomenon is appearing in other regions, as well, although that is a story for another day.) The graph below comes directly from the authors’ presentation (for more on the report’s methodology, see the publication here).

At the event (you can watch a webcast here) the authors mentioned that the shift of the population from poor into vulnerable correlates with several factors: economic growth in countries like Mexico and Brazil, increased educational opportunities for the poor, increased female participation in the labor force, improvements in public health, and the implementation of conditional cash transfer (CCT) systems, among others. The authors are careful to define these connections as correlations rather than attributing causes.

In Latin America, many people have been making the climb toward prosperity a one-way trip. More people move from poor to vulnerable to middle class, than in the other direction.

In the financial services realm, one of the relationships highlighted by the report was between class movement and conditional cash transfers. CCTs are the beginning of a social safety net. They assist people to transition from the poor to the vulnerable class but have little effect in moving people into the middle income class. Contrast this with the role microfinance often ascribes to itself. Many microfinance practitioners, especially in Latin America, have argued that the most effective role of microfinance is to assist the working poor (vulnerable), i.e., those just above the level of people at whom CCTs are aimed.

The authors suggest that when people have made the transition from vulnerable to middle class they tend to adopt more consumerist behaviors – engaging in what the authors described as “removing themselves from the social contract” by shifting from public to privately provided service alternatives (education, electrical utilities, security, etc.). Such a shift in spending patterns means that rather than saving more money as they move up the economic ladder, people in Latin America increase their spending.

The act of defining this vulnerable group is changing the way we think about financial inclusion. As we think about knowing our customers, we need to understand the motivations, choices, and challenges facing the growing number of not-quite poor, not-quite middle class populations in Latin America and beyond.

Image credit: The World Bank


You Are Four Times More Likely to Recognize the Coke Logo Than to Have Saved in the Last Year… And Other Fun Facts

23 01 2013

> This post was originally written with Merene Botsio for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

People across the world are four times more likely to recognize the Coca-Cola logo than to have saved money in a formal financial institution in the past year. Almost everyone—94 percent of adults in the world—recognizes the Coca-Cola logo, whereas only 23 percent of people have saved at a formal financial institution. When we bring big statistics down to our everyday lives, it often becomes easier to understand their magnitude. Here are some other surprising figures that emerge when we compare the Global Findex numbers on financial services usage to other figures.*

  • You are more likely to get 1,000 views when you post a YouTube video than you are to have a home loan. Ten percent of videos on YouTube have at least 1,000 views, and seven percent of people in the world reported having an outstanding loan to purchase a home.
  • You are more likely to have a cell phone than a back account. Globally, the likelihood of having a mobile phoneis 75 percent, whereas the likelihood of having a bank account is just over 50 percent.
  • Globally, you are three times more likely to have internet access than a loan from a formal financial institution (30 percent versus 9 percent).
  • If you live in a low-income country, you are more likely to live in a slum than to have an account at a formal financial institution. A third of all people in low-income economies live in slums, whereas only 24 percent of adults in low-income economies have an account from a formal financial institution.
  • You are almost 25 times more likely to own a radio than to have crop insurance as a farmer in a rural area in Sub-Saharan Africa. Only three percent of farmers report having crop insurance, while over 70 percent of Africa’s rural population owns a radio.
  • You are four times more likely to have electricity than to use a bank account to receive wages. Globally electricity is accessed by 80 percent of adults, whereas bank accounts are used to receive wages by 20 percent.

For more information on financial services use throughout the world, visit the Global Findex landing page. For more information on Financial Inclusion 2020, and to explore becoming roadmap contributors or reviewers, sign up for campaign updates.

*All financial inclusion figures come from the Global Findex, published by the World Bank unless otherwise specified.

Image Credit: Business Insider / anguskirk

Payroll Loans: The “Coffee Date” of Financial Services

10 01 2013

> This post was originally written for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

We’ve talked in this blog about on-ramps to financial inclusion—the services that get new people into formal financial services, build trust between clients and providers, and establish new financial habits in the lives of individuals. Here’s one example, for one group of potential new customers.

Payroll loans in Latin America were recently called “the coffee date” of financial inclusion by The Wall Street Journal because they’re a relatively low-risk way to let both parties—the client and the financial institution—decide how and whether to continue the relationship.

Payroll loans are disbursed by a bank to a consumer and then automatically repaid through deductions from an individual’s paycheck. Such loans are a natural fit in a formal employment setting, especially if payroll is handled through direct deposit in a bank.

Payroll loans are a convenient way to take advantage of an institutional structure in which employees already have a bank account. They yield a much higher repayment rate than credit cards. They allow individuals to establish a credit history with a small principle and small transactions. It is no wonder that payroll loans increased 16.5 percent last year in Brazil to become an $88 billion market, and 32 percent in Mexico to become a $9 billion market.

At the Center, our vision of financial inclusion includes convenience, choice, and affordability. Here’s where we see payroll loans as perhaps a good on-ramp, but not necessarily a final destination. While payroll loans are convenientbecause they use the same institution through which clients are already receiving paychecks, they rarely offer achoice of lender. The system does not foster a competitive marketplace for consumers. Banks may have a greater incentive to court employers than individuals. This incentive structure may bring up questions of consumer protection. Does the bank have the best interest of the consumer or the employer in mind?

Another question concerns affordability. Since payroll loans have a higher repayment rate than credit cards (97 percent vs. 95 percent), one might expect them to carry a lower interest rate. In Mexico, however, payroll loans and credit card rates, at about 35 percent per annum, are roughly equivalent.

Even the best coffee dates are seldom the basis for a long-term relationship, so the real question is whether employees whose first experience with credit is through payroll loans actually do build a credit history that they can use to access more services over time.

And as a final note, while we can celebrate the existence of an on-ramp for people with formal sector employment, it is also true that in Mexico, over 60 percent of all households operate in the informal sector, beyond the reach of payroll loans. Is anyone asking those folks out for coffee?

Image Credit: Hatch Collaborative

Customer Loyalty: In Defense of Unprofitable Accounts

23 11 2012

> This post was originally written for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

I’ve mentioned before on this blog that I opened my first bank account when I was eight. It was a “Breezy” account, named for the bank’s clown mascot and geared specifically toward children. With my mom as my co-signer, I stood on a stool, reached across the counter, and deposited a piggy-bank’s worth of pennies, nickels, dimes, and quarters. When I was 16 I started putting my babysitting money into it, when I turned 18 I withdrew most of my meager funds for a backpacking trip through Europe, and when I was 23 I enrolled in my first direct deposit program using the same account. When I got married, my husband joined as my co-signer. The “Breezy” branding has long since been dropped from the account, and I have upgraded to a higher interest rate, but for all intents and purposes, it is the same account that I had when I was eight.

Judge me as being lazy, stupid, or ignorant if you want—I’m not alone in my loyalty to my bank. A recent report by Javelin Strategy & Research, a market research firm, showed that 11 percent of customers want to change banks. If history is any indicator of the future, though, few will actually make the change. On Bank Transfer Day a year ago, only 3 percent of customers (5.6 million people) switched their primary financial institution—even amidst the rising popularity of the Occupy Wall Street movement and public outcry over a change in Bank of America’s debit account policies.

Customers are loyal to their banks, and this presents an opportunity. Globally, incomes across the economic spectrum are on the rise. Knowing that customers tend to stay with their banks, the time to secure customer loyalty was yesterday. To the supply side of the financial sector, the fact that about half of the world is without a bank account should scream “MARKET OPPORTUNITY!”

My guess is that my bank didn’t make any money on me for well over a decade. The monthly paper statements, the cost of the teller’s time to count my pounds of change, the consistently low account balance, and the price of the “Breezy” brand (including balloon-blowing clown to visit the bank on special Saturdays) were well above the profit that the bank was able to earn lending my paltry pennies out as principal. The bank even waived my (albeit infrequent) overdraft charges. Talk about low return on investment!

Fast forward to today, and I have a fairly steady income. In fact, I’m starting to be able to save for the future. My balance sheet is poised to move in the positive direction, and my husband and I are talking about buying property in the next few years. In addition, my interaction with my bank has gone virtual—I haven’t been to a teller in over a year, my statements are emailed to me, and I do most of my banking and bill pay online. Frankly, my bank should probably expect to start making money on me if they haven’t already. I am living proof that unprofitable accounts represent a future opportunity for big banks.

Image Credit:


Measuring Financial Inclusion: The “Basic Set” Solution

16 11 2012

> This post was originally written for the Center for Financial Inclusion at Accion blog. It was reposted here with permission.

The G20’s Global Partnership for Financial Inclusion(GPFI) has just unveiled a “Basic Set” of indicators that help to solve the problem of how to measure financial inclusion. Their associated data portal will soon be available, too. This indicators release is timely—it corresponds to a massive increase in the amount of data that we have on financial inclusion, and it fills a need in the industry to define what we mean when we say “level of financial inclusion” in a measurable way.

The release also coincides with our own internal discussions here at the Center. Around the coffee pot, after meetings, and in blog posts, we have been wondering how to objectively measure and track financial inclusion. Beth Rhyne discusses the inadequacies of just using account penetration in her blog post “What’s Wrong with ‘Banking the Unbanked’?.”  Ignacio Mas posits “Mobile Money as a (Payment) Planning Tool,” a use that is not tracked in the headline indicators of available data. Leora Klapper’s “We Bring You… DATA!” underlines how critical demand-side data is to complement supply-side data-gathering efforts.

While the Global Partnership for Financial Inclusion does not solve every measurement problem, it certainly is a great start. The “Basic Set” covers five indicators, each measured in multiple ways: individual accounts, individual credit, small and medium enterprise accounts, small and medium enterprise credit, and branch penetration.

Image taken from “The G20 Basic Set of Financial Inclusion Indicators” by GPFI.

This amalgamated dataset recognizes a few critical challenges in the exercise of measuring financial inclusion:

  • The measurement of financial inclusion must take into account both supply side and the demand side of finance. Accordingly, the “Basic Set” of indicators pulls from demand-side sources (the Global Findex and the World Bank Group Enterprise Surveys) and pairs them with supply-side sources (the IMF Financial Access Survey) within the same categories (see the “Indicators” column above).
  • Financial inclusion is more than access to accounts. While the GPFI “Basic Set” does not include all indicators (mobile phones, for instance), it does include individual credit, SME credit, and SME accounts.
  • In addition to use, financial inclusion measures should include availability of services. As a measure of penetration of points of service, the GPFI uses the number of branches per 100,000 adults from the IMF Financial Access Survey.
  • People access financial services for both business and personal use. The “Basic Set” consists of both individual and small and medium enterprise use of formal financial services in addition to tracking both the supply and the demand side.

For more information, head over to the Global Partnerships for Financial Inclusion’s website, which will soon include the “Basic Set” of indicators data portal, complete with visualizations of the different datasets. We look forward to continuing to watch how the industry asks the question of how to measure and track financial inclusion.

Image credit: GPFI



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