The financial inclusion ecosystem

I am delighted to share my first attempt in putting together a diagram that represents the financial inclusion ecosystem.

While working in this sector and attending presentations provided by the different types of agencies I included here, I could not help but to notice that the linkages exist, but that the ecosystem continues to work as separate, rather detached clusters. This is why I wished to start putting the pieces together, to visualise the larger ecosystem and realise that we all work for the same end-goal; i.e. to foster financial inclusion of those who, historically or temporarily, have limited access to finance, so that they can become more economically sustainable and resilient.

For example, the main actors involved in improving the livelihoods of refugees – e.g. international non-profit organisations (NPOs) – which tend to focus on cash based assistance, have begun engaging with fintechs to digitalise the identification process, but are rarely in conversation about the role of remittances or saving groups at the local or diaspora level. Money transfer and mobile network operators (MTOs and MNOs) are actively engaging in conversations about remittances, but those that traditionally worked with microfinance institutions (MFIs) seem to not have yet found effective synergies to collaborate with them.

Before proceeding further, I would like to briefly explain the main aspects of this diagram. The green circle represents the local ecosystem or community, which – in very broad terms and specifically referring to financial inclusion – consists of the individual, its household, the extended families, the informal economy and MSMEs. At the national level, represented by the blue circle, different agencies operate, such as MNOs, off grid energy providers, banks and MFIs (including credit unions and other forms of legal entities), insurance companies and fintechs. The national financial ecosystem is often controlled, at least in part, by regulators, such as the central bank. However, this purple ring representing regulators is dotted, because depending on the legal form of the organisation, the latter may not be under any regulator’s scrutiny. In the international sphere, on one hand, there is the diaspora community – represented by migrants and refugees – who are commonly considered the main source of income for their families back home and send remittances via MTOs or other channels. On the other hand, there is a network of investors, ranging from development finance institutions (DFIs), impact investors and the intermediaries they use, such as microfinance investment vehicles (MIVs) and hedge funds. Lastly, each line represents a different type of financial service and its flow direction, while the dotted lines stand for common partnerships amongst the agencies.

Surely, this diagram is a working draft and it does not yet refer to some important actors of financial inclusion, such as those from the field of agricultural finance. Cryptocurrency is mentioned but without a defined link yet, since so far, there are only signs of people testing cryptocurrency platforms to send remittances. Nonetheless, I believe a visual, such as this diagram, helps to keep a customer-centric perspective of the ecosystem, which can support any of the actors involved in its processes for product development and also digitalisation. For example, the main target client, in this diagram, is represented by the house on the left, with its household and extended family, although the informal economy, MSMEs and the disapora community are part of the larger target group. When designing a new product or project for digitalisation, it is pivotal to understand which role you play in the larger ecosystem the target client inhabits and which services she or he is already using and through which channels.

With no further due for now, I very much welcome any feedback or thoughts from you!

Intensified social unrest and poverty, the real Covid-19 crisis

Covid-19 has demonstrated to be a slow-burner, especially in developing countries, where partial forms of lockdown hasn’t seized since April this year. At first, we joked that governments were extending lockdown every two weeks to not get their citizens upset; but now that half a year has passed, it is evident that intensified social unrest and poverty are, indeed, at the heart of this crisis.

Across the globe, Covid-19 challenged the public healthcare system, the capacity of national governments to coordinate emergency measures (see my related post) and social welfare schemes. For instance, a month into the first wave of the pandemic, public healthcare systems were scrutinised according to the number of tests and hospital beds per capita, as well as intensive care unit capacity, pointing out which states (or regions within states) could not even pretend to cope with the pandemic.

Forms of social protection schemes have also been applied, such as wage subsidies and moratoriums for outstanding loans. The majority of EU countries, for example, applied wage subsidies, committing to cover on average 70-80% for employees who were furloughed; whilst moratoriums were applied on loans for three to six months, in order to partially relieve indebted people from economic pressure.

However, this pandemic is affecting populations unequally and highlighting the harm weak states and social infrastructures can do to their citizens and, in particular, to its vulnerable groups.

Starting from the household level, incidence of domestic violence is reported to have increased by 20% since the beginning of this pandemic, by the UN. In a couple of countries in the East Mediterranean area, reported cases have risen even by 50-60%. In order to practice social distancing, one needs to be able to create distance; however, over one billion people, representing 23.5% of the world population live in informal settlements (aka, slums). Also, more than two billion people, i.e. 61% of the world’s working population, make a living in the informal economy, automatically excluding them from receiving most of the Covid-related social protection schemes. Although it holds true that the informal economy continues to prevail in developing countries, in more developed countries a significant share of these unprotected workers are the undocumented migrants.

The lockdown has also been a stage for a surge in micro and macro-conflicts. At the micro level, petty crime, such as theft for primary necessities, have seen an increase in countries such as Spain and Colombia. At a more structural level, 11 out of 18 Latin American countries that were surveyed by InSight Crime had recorded prisoner riots, due to the spread of the virus and, in some cases, worsened conditions due to shortage of staff. The Peace Process in Colombia has in part seen a reverse in progress, where armed criminal groups have taken advantage of the lockdown to expand their control of rural areas, recruit child soldiers, kill peace activists and ex-FARC soldiers that are part of the process, complicating further the delicate reintegration of ex-rebels into the society.

This crisis was triggered by a global pandemic but today it is, more than anything, a social crisis. When you can’t even count on the market because it is forced to slow down and we are all pushed to question to what extent our basic human rights are guarded by the system, people’s trust in the rule of law and their state is put under the spotlight. Throughout this current crisis, the governments that have historically worked to develop an inclusive society have, once again, proven to be the most effective in implementing both preventive and reparative measures.

The pivotal role of migrants and remittances in the recovery from Covid-19

The Sustainable Development Goal 10 to Reduce Inequalities, consists of the targets to “Facilitate orderly, safe, regular and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies” and “By 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent“. Throughout the ongoing Covid-19 pandemic, we are witnessing a significant drop in remittances sent to low-income and fragile states and at the same time, migrant workers are playing a pivotal role in the economic recovery of the high-income countries. The effect of choosing to not provide social welfare to migrants and their families is – not only a deprivation of basic rights, especially in the midst of a sanitary disaster, but also – devastating for both the host countries and the countries of origin.

Coffee and value chain finance

Whilst several countries are gradually recovering from the pandemic, it is time to look ahead, to build a post Covid-19 society and prevent the most vulnerable communities from falling into poverty. This is why this month I wrote about an inspiring social enterprise I recently came across.

Value chain finance so far has not advanced to satisfying levels, in order to see positive impact on a significant number of smallholder farmers around the world. Challenges are many, amongst which its intrinsic multi-stakeholder nature, which stretches into the realm of international trade dynamics, such as foreign exchange risk and multiple regulations to abide by, and a notable level of technical expertise about the crop production. In a context where the profit margin for – in this case – smallholder coffee producers in Colombia is marginal, it is complex for their buyers to strike a balance between successful sales and a sustainable livelihood for the producers.

Client Protection under Covid-19: Practical Guidelines for Financial Service Providers

While a large majority of the global population is enduring extended periods of mobility restrictions and economic downturn due to Covid-19, financial service providers (FSPs) are doing their part in adapting and offering new services to support their customers that are facing issues of liquidity shortage and capital depletion. Especially the institutions that take part in the inclusive finance sector are, at the same time, determined to understand how to maintain their commitment to client protection principles, whilst tackling the mass-scale impact of this pandemic.

This brief article proposes practical guidelines for FSPs and alike that are interested in ensuring that their operations under these new measures and context continue to be in line with the best practices of client protection, with reference to the Smart Campaign’s Client Protection Certification and the European Code of Good Conduct for Microcredit Provision. It should be noted, however, that I do not represent the stakeholders of the mentioned certification schemes; thus, this article is based on my own reflections as a qualified evaluator.

Decentralisation in the time of Covid-19

Decentralisation of governments have been praised and encouraged across the world, because giving more autonomy to sub-national governments is claimed to foster accountability and lead to more efficiency and democracy. One of the government’s responsibilities that is most commonly passed down to regional authorities is healthcare. But in a context of a global pandemic, do the benefits of decentralisation prevail?

Financial services for refugees and the dilemma of personal ID

As millions of people continue to migrate due to political unrest, climate change or limited economic opportunities, there is an ongoing discussion around how to provide financial services for refugees. The presentations and projects around this topic so far have the tendency to focus on one specific group, i.e. those who reside in refugee camps. As a result, the needs of the rest of the refugee population are not addressed and the discourse often seems disconnected from reality. The panel on digital financial services for refugees organised by the Financial Inclusion Forum UK, however, shed light on an important dilemma, which is the personal identification of refugees.

Credit scoring and macroeconomics

Setting up a credit scoring system has become an intrinsic part of the digitalisation strategy that numerous microfinance institutions (MFIs) have taken on in the recent years. Its benefits are clear: reduction of subjectivity or manipulation during loan analysis, lower margin of error, faster turn around time, and potentially, reduction of personnel and therefore costs. However, the way it has been implemented and the extent to which such a system is capable of adapting, not only to the loan products and the target client groups of MFIs, but also to the changes in the macroeconomic context are questionable.

Financial inclusion or saturation of the bankable poor?

Now that the damages of the Andhra Pradesh crisis are behind us, the microfinance sector has been prospering, with commercial banks down-scaling in some regions and online lenders and mobile network operators (MNOs) flourishing in others. The initiatives that followed the public denunciation of aggressive microfinance practices have sensitised the top microfinance institutions (MFIs) and investors about client protection principles, and generally the importance of informing clients in a clear, transparent and timely manner about their rights and obligations. But almost ten years after the crisis, client protection seems more and more just a stamp to have, rather than a common interest that the stakeholders of this sector have in common.

Microfinance in post-war countries: the Balkans

In this first semester of 2016, I had the fortune to travel around the Balkans. Bosnia, Serbia, Kosovo… They are all countries that were once a unity but now striving to create their separate identities and with that, new governments and sets of regulations. Especially when you notice a cement wall full of gun shots in Sarajevo or house after house being built with bare bricks outside Pristina, I found it encouraging to witness what countries that were in war just 20 years ago look like today.