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Posts Tagged ‘financial inclusion’
GIM Expert Featured in Fox Business: Who Needs Cash? Online Banking for the World’s Poorest

Excerpt. For full article, please use this link.

“Players in the financial-services industry are traveling to the world’s most cash-rich locales, scouring rural villages in an effort to tap an untouched market where some 2.4 billion people have yet to open a bank account.

“I don’t think there’s any doubt that there’s a tectonic shift in technology here, a leapfrog opportunity,” said Gordon Cooper, Visa’s head of emerging market solutions. “We are quite certain that the real opportunity lies in non-traditional growth.”

Sobhani, who focuses on U.N.’s growing inclusive markets initiative, said providing the poor access to financial services through mobile platforms is a “critical enabler.”

That ranges from governments and relief programs providing and tracking direct aid to earthquake victims in Haiti to the ability of hooking rural farmers up to the grid in what led to the creation of Sub-Saharan Africa’s first commodities exchange in Ethiopia.”

Read more:

Beyond microfinance: Can government cash transfers scale up financial access for the poorest?

Beyond microfinance: Can government cash transfers scale up financial access for the poorest?

From Business Fights Poverty, written by Sahba Sobhani and Subathirai Sivakumaran, Growing Inclusive Markets Initiative, UNDP

What next after microcredit?

The last few years of news scandals in the microfinance arena has created a gap in the credibility and viability of providing effective, low-cost and impactful financial services to the poor. Newer studies calculating the impact of microcredit find controversial development impact. SKS Finance’s $347 mn IPO (coming after Compartamos’ record-breaking IPO and profits in 2007 ) was followed by a dramatic stock price fall in 2011, amidst allegations that aggressive lending practices led to increased impoverishment of poor borrowers, and farmer suicides. Increased regulatory burdens in many countries amidst an environment of constrained credit and diminishing grants has squeezed microfinance break-even profitability and limited its scaling.

But one should be careful not to throw the baby out with the bathwater.

What are other successful financial products for the poor?

What the developed world thinks of as formal bank accounts is not what works for the poorest populations. Rather, no-frills bank accounts (that limit transactions and reduce the cost of ‘servicing’), mobile wallets, prepaid debit cards that can be reloaded are all currently enjoying great success in the markets of the poor. Low cost payment systems (a Visa/Mastercard/Amex system for the poor) are using innovative channels and technologies to reach the poor, achieve a volume of transactions and turn a profit. These systems and ‘accounts’ offer the poor the ability to save, transact and build wealth securely and at lower costs than otherwise. A slew of exciting product innovation in commitment savings products, micro-insurance, and others are also being piloted.

How can scale be achieved in introducing these products to the poor?

All of these methods have been used successfully to reach the poor through government to person transfer programs, such as Latin American conditional cash transfer programs, emergency cash transfer programs, government salary payments to low income employees and a variety of other programs. But there is still a way to go in advocating for governments and donors to change the way they do business.

The Consultative Group to Assist the Poor (CGAP) reported in 2009 that over 170 million people are receiving cash transfers from their governments. Yet only one quarter receive these benefits into a financially inclusive bank account. While advances have been made since 2009, the majority of the poor still receive their recurring payments through lining up, and receiving cash envelopes.

It is not only governments who need to transform their practices, but also donors who need to find a third way for official development assistance. In the humanitarian sphere, innovative advances in the disbursement of hundreds of millions of dollars of cash transfers to the disaster or war-affected, annually, have enabled effective financial inclusion through the use of mobile phones, debit cards and bank accounts.

In an upcoming database soon to be published by UNDP, nearly 25% of 168 emergency cash transfer programmes in the last 5 years have used either mobiles, prepaid cards or bank accounts to transfer cash. These practices ensure that money goes directly to the recipient without endemic leakages, and ensure greater aid-effectiveness through increased monitoring ability. In Haiti, in 2012, for the first time in the world, mobile enabled cash transfers are being used by UNDP for a housing repair voucher system to earthquake-affected victims who reside in camps and insecure dwellings.

What is the increased development impact in doing so?

Linking government cash transfer programs to some form of accounts to the poor can provide participants with greater social empowerment, positive psychological impacts, increased investment in human capital, future-oriented outlooks, the ability to weather shocks, and contribute towards the Millennium Development Goals.

For example, a new and exciting randomized control trial in Niger in 2011 found that the mobile delivery mechanism (called zap) strongly reduced the variable distribution costs for the implementing agency, as well as program recipients’ costs of obtaining the cash transfer.  The zap approach also resulted in additional benefits: households in zap villages used their cash transfer to purchase a more diverse set of goods, had higher diet diversity, depleted fewer assets and grew more types of crops, especially marginal cash crops grown by women.

It’s not just about opening bank accounts for the poor.

The answer is not to open more ‘traditional’ bank accounts for the poor. Shortsighted pushes to expand financial services to the poor have resulted in distorted incentives and many dormant bank accounts. The last mile still has to be accomplished. Ensuring that the poor receive access to a suite of saving, wealth-building and cheaper transactional methods necessitates efficient pro-poor payment systems. This means not only using low-cost technology, but finding the appropriate distribution agents and points of service that allow the poor to effectively use mobile phones/prepaid cards/basic bank accounts effectively and frequently.

In case studies written by the Growing Inclusive Markets initiative at UNDP, examples of A Little World in India, MAP International in Uganda and GiroNil in Egypt show promising private sector providers who have begun innovating low cost payment systems (like Visa or Mastercard in the developed world) that use innovative technologies such as mobile transmission, RFID chips and offline capabilities to lower the cost of transacting electronically for the poor. Partnerships with state postal institutions in Egypt ensure an extension of low cost payment possibilities to the poor. Working with the rural employment guarantee scheme in India (NREGA) allows ALW to achieve volume in payments (and open 4 million accounts for the poor) and therefore achieve profitability quicker.

There is great momentum, knowledge building, implementation of pilots and attempts to scale the universe of safe, effective and transparent financial services of the poor. Credit is only one cog in the wheel. What is even more essential is the overlooked but critical factor of access to pro-poor accounts (whatever form they take) and cheap and effective transactional methods. To accelerate the adoption of these systems and achieve scale, governments and donors need to change their own practices. It is only then that financial services for the poor will achieve its great promise of contributing to the eradication of poverty.

Expanding Global Financial Inclusion through Government to Person (G2P) Payments and Emergency Cash Transfers

In the framework of the fourth United Nations Conference on Least Developed Countries, UNDP –  in partnership with the United Nations Capital Development Fund (UNCDF), the State Planning Organization (SPO), the Turkish International Cooperation and Development Agency (TIKA), Vodafone and Visa – organized a seminar / workshop on “Expanding Global Financial Inclusion through Government to Person (G2P) Payments and Emergency Cash Transfers”, held at the Istanbul International Center for Private Sector in Development (IICPSD) premises on May 11, 2011. The event was attended by about sixty participants from the private and public sectors, civil society organizations and development practitioners, including from the LDCs, in an effort to strengthen South-South cooperation.

Ms. Ulrika Richardson-Golinski, Deputy Resident Representative, UNDP Turkey, gave the opening remarks, expressing her gratitude for the participation of various stakeholders in this important discussion about financial inclusion and the role of different actors such as the government.

Ms. Kori Udovicki, Director of the Regional Bureau for Europe and the Commonwealth of Independent States and Assistant Secretary-General, UNDP, talked about UNDP’s recent work on social exclusion in the region, including the forthcoming Regional Human Development Report, which explicitly recognizes access to financial services as a critical element of its multidimensional measure of social exclusion. Ms. Udovicki then addressed: 1) why scaling up access to financial services for the poorest was critical for broad-based, sustainable development; 2) what G2P transfers to low-cost savings accounts could do to markedly boost financial inclusion in a way that is a win-win for all actors involved (governments, providers of financial and telecoms services, payment recipients); and 3) how mobile phone-based branchless banking and routing remittance flows to G2P accounts could bring volumes towards commercially viable levels in poor countries.

Mr. Sahba Sobhani, IICPSD Interim Director, presented different mechanisms for transferring cash to the poor as part of a primer on G2P Payments and Emergency Cash Transfers being developed in collaboration with the UNDP Bureau for Crisis Prevention and Recovery. These include: 1) Government to Person (G2P) Cash Transfers, mostly used for social protection transfers (whether conditional or unconditional) and payment of wages/pensions to low income employees; and 2) Donor to Person (D2P) Cash Transfers, mostly used in emergency situations (e.g. Cash for Work), microfinance schemes, as well as livelihoods and microenterprise programming. Mr. Sobhani also explained the process of setting up cash transfers, from establishing recipients’ identity to communicating program, ensuring security, identifying partners, establishing the payment system (with a focus on electronic systems), resolving disputes, monitoring and evaluating.

Opening speeches were followed by a discussion on current global programs and the role of governments and international organizations, moderated by Mr. Balazs Horvath, Poverty Reduction Practice Leader, UNDP Bratislava Regional Center. Presentations were made by the following speakers:

  • Mr. David Morrison, UNCDF Executive Director, explained the significance of this event by addressing the fact that it brought major international organizations working on financial inclusion together. Mr. Morrison underlined that the main challenge of extending financial services to the LDCs was to establish operating financial systems in a context of underdeveloped infrastructure, limited financial institutions, unconducive regulatory environment, traditional approach to banking, and lack of coherence between different actors (public, private and donors). In this respect, Mr. Morrison made particular emphasis on financial literacy and women-controlled savings accounts, based on the experience of microfinance, and concluded by stressing the significant role of the private sector.
  • Mr. Thomas Debass, Director for Global Partnerships, US State Department, discussed the Haiti Integrated Finance for Value Chains and Enterprises (HIFIVE) project, aimed at improving the availability of financial products and services, especially in rural areas, and supporting the expansion of agricultural and other production sectors. Mr. Debass specified how HIFIVE and the Gates/USAID Challenge Fund are working together with financial institutions in Haiti, such as MFIs and credit cooperatives, to diversify financial products and extend their reach to agricultural and rural areas, using appropriate incentives and risk management activities. ICT solutions and value chain finance were also named as important components of financial inclusion, in addition with cooperation between strategic partners, such as the World Council of Credit Unions and Technoserve.
  • Mr. Yusuf Yuksel, Head of Income Distribution & Social Inclusion Department, State Planning Organization, Turkish Government, presented the Social Support Programme SODES, which aims to raise the socio-economic development level, enhance the human capital of the region, offer opportunities to the disadvantaged groups of society, and encourage children, youth and women to be involved in cultural, artistic and sports activities. From 2008-2010, over 20,000 people attended vocational training courses, 1,000 received microloans, 336,000 books were distributed, and over 32,000 students attended education support programmes, among other achievements.
  • Prof. Dr. Julide Yildirim Ocal, from Gazi University and the Center of Research for Advanced Technologies of Information and Information Security, presented Conditional Cash Transfer Programs in Turkey, which have benefited 4.3 million people from 2003-2011. One such program is the Social Risk Mitigation Project, aimed at improving children’s health, pregnancy care, and children’s education (especially girls).
  • Mr. Omer Kuyucu, Head of Unit at Vodafone, made a presentation on mobile banking experience in Africa and the Pacific, emergency cash transfer in Kenya and the potential for G2P. In Kenya, with the cooperation of Visa and Vodafone, mobile banking was introduced and people’s awareness of financial services increased to 80%, while 66% could access banking through mobile devices even though the banking infrastructure was very underdeveloped. In Tanzania, despite the high literacy rate of 70%, only 9% of the population had access to banking services and similar positive outcomes were achieved after the launch of mobile banking. Mr. Kuyucu identified regulatory environment, standardization of processes, availability and ease of use of end-user devices as critical for such projects to extend financial inclusion.

Mr. Henry Jackelen, Director of the Private Sector Division, UNDP, wrapped up the discussion by emphasizing the special role of the private sector in global financial inclusion, and underlining the use of technology and innovation as critical for improving the availability of financial services. Mr. Jackelen point out to the examples of Vodafone and Visa in this regard and explained that these cases showed how private sector can make a difference and revolutionize the life of the poorest.

Closing remarks were made by Ambassador Ertuğrul Apakan, Permanent Representative of the Turkish Government at the United Nations, who pointed out the special relationship between Turkey and UNDP, and how Turkey gained valuable experience through more than 50 years of cooperation with UNDP. He highlighted UNDP’s offering to Turkey to become a strategic partner in the region and the opening of the Istanbul International Center for Private Sector in Development (IICPSD) as an outcome of this agreement. Ambassador Apakan explained that the “Programme of Action for the LDCs for the Decade 2011-2020” makes significant reference to the critical role of private sector, and that the IICPSD will play a regional role in promoting the inclusion of private sector in development. He concluded the event by expressing Turkey’s willingness to establish a UN regional hub in Istanbul and how UNDP had already taken a step in this direction with the inauguration of the IICPSD by UNDP Administrator Ms. Helen Clark.

The event was followed by a lunch with participants at the Orient Express Restaurant at Sirkeci Station, famous for the Orient Express and Agatha Christie.