Financial Inclusion

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Financial Inclusion

Six important financial inclusion products globally are savings groups, Quod, microcredit, proverty-free bank accounts, informal ID accounts, and crop insurance. Two organizations that have scaled financial inclusion are Grameen Bank and BRAC. Six financial apps that have multiple financial inclusion features are GrabPay, Gojek, Line Corporation, Alipay, WeChat, and MaTontine.

Savings Groups

  • According to Fomin.org, savings groups have "been a useful tool for integrating rural populations into the financial sector."
  • Savings groups, which are "comprised of 15-25 self-selected individuals who save together and take small loans from those savings," have been helpful financial inclusion products in countries like Colombia, El Salvador, and Guatemala.
  • This community-based microfinance model debuted in Africa in the 1990s and has moved to other rural areas such as those in South America to assist people in accessing loans for which they would not typically qualify.
  • Additionally, savings groups "savings groups establish bonds based on trust and solidarity within communities and promote the participation of all of their members," and represent progress toward poverty elimination.

Quod

  • Quod is a new credit bureau in Brazil that is designed to use both positive and negative consumer credit information to assess consumer credit worthiness, which intends to disrupt the current formal credit system that currently "excludes over 50 million Brazilian adults" from getting credit.
  • According to Forbes, the "work that Quod is doing is one of the most progressive examples of financial inclusion in the world today."
  • The main reason that people in Brazil lack the ability to get credit is the absence of "detailed information about credit risk and credit worthiness," but with the five major banks in Brazil using Quod to develop, promote, and adopt positive credit scoring, it will be possible to begin attributing credit scores and risk to more people, even if they have relatively few transactions in their history.
  • Once Quod is fully developed, it will provide the banks with "a host of solutions for credit risk analysis, fraud prevention and customer reporting" and will provide "more opportunities for access to credit products and, ultimately, solv[e] the financial exclusion problem that Brazil has."

Microcredit

  • Numerous non-profit organizations, including Grameen Bank and BRAC in Bangladesh and Accion in Latin America lend microcredit to very poor borrowers, some of whom only make $1 or $2 per day.
  • Despite their low wages, microcredit borrowers have an average repayment rate of 96%.
  • Many microcredit lending organizations have made it a priority to lend to women and other minorities to help them start businesses and pull themselves out of poverty.
  • Additionally, studies have shown that microcredit loans help provide the very poor who "may have a need for cash to meet emergencies, or for a big purchase, or even just to provide an inflow of money to put food on the table when income fluctuates."
  • Although many people in these countries get loans from family members and friends as well, the microcredit organizations are always available, so people come to depend on them to be there when they need them.

Poverty-Free Bank Accounts

Informal ID Accounts

  • In Nigeria, Diamond Bank partnered with Visa and two non-profit organizations to allow women to open basic savings accounts.
  • About 40% of women are part of the informal Nigerian economy, but have no way to save money.
  • All that is needed for women to open a savings account with Diamond banks is a photo and basic information, which can be entered using a phone.
  • The women who use these accounts can earn weekly rewards for meeting their financial goals.
  • In the first six months of the initiative, these savings accounts "generated $1.5 million in savings in 38,000 accounts, or nearly $40 per account," which is considered a major achievement given that most of these women have low incomes and have never banked before.

Crop Insurance

  • Insurance is a very low-usage product in developing nations, but an insurer with Kenya is helping farmers insure their crops while limiting fraudulent claims at the same time.
  • Kenyan farmers pay a 5% premium on fertilizer, seed, and chemical purchases and receive crop insurance coverage from UAP in exchange.
  • In the event that a local weather station measures too little or too much rain to yield healthy crops, the insurance policies pay benefits to the farmers.
  • At the time of purchase, the insurance policies are registered by scanning a bar code and they pay out "through a mobile money payment system."


Case Studies

Grameen Bank

  • Grameen Bank has scaled financial inclusion by providing microloans to rural villagers in Bangladesh.
  • The goals of Grameen Bank are to extend banking services to poor people, stop the "exploitation of the poor by money lenders," create opportunities for entrepreneurship among the unemployed people of Bangladesh, help women from the poorest homes learn to manage themselves, and reverse the cycle of "low income, injection of credit, investment, more income, more savings, more investment, more income."
  • The main clientele of Grameen Bank are people who "make up the 50% below the poverty line."
  • In 1976, Professor Muhammad Yunus started Grameen Bank with just $27 of his own money. As of 2012, the bank served over 7 million poor families by providing them with microloans.
  • Grameen Bank does not use tools to offer financial inclusion at scale. It simply offers low-interest, no-collateral loans to anyone who needs one.
  • Moreover, Grameen Bank stops charging interest on the loans once the "amount accrued from paying the interest rate equals the principal."
  • Each borrower must belong to a five-person group, but no member of the group is required to guarantee a loan. Additionally, the bank does not pursue non-repayment of loans, so borrowers are also not required to sign a legal repayment agreement.
  • Grameen Bank has had a significant impact on poor communities in Bangladesh and has expanded to other parts of the world. It now has 2,564 branches and 97% of its membership are women.
  • Other financial services offered by Grammen Bank include housing for the poor, scholarships, pension funds, telephone funding, and education loans.
  • There are no networks listed on Grameen Bank's website and it states that it is fully self-reliant.

BRAC

  • BRAC is a microfinance organization that operates in several countries, but has 200,000 "predominantly rural, female clients" in Uganda.
  • Established in 2008 in Uganda, BRAC has provided loans of between $55 to $1,400 to poor women and small enterprise loans of between $1,400 and $10,000 to poor males and females who own businesses.
  • Initially, BRAC was a Tier 4 institution in Uganda, which is designated for "unregulated credit-only NGOs, and money lenders," but due to its growth, in 2017, it submitted an application to be designated a Tier 2 regulated Credit Institution that allowed it to expand its services to poor individuals, including the ability to offer savings accounts.
  • The proof that this company has scaled financial inclusion is its desire to convert from a Tier 4 institution to a Tier 2 institution, which requires a company to be profitable enough to "absorb the added compliance costs of being a deposit taking entity without risking mission drift."
  • While the initial plan was to convert to a Tier 3 institution, BRAC decided to skip that level to be able to provide more services to Uganda's poor, which is fully in line with the company's mission.
  • Customers can open savings accounts through BRAC with just $1.50, which meant that BRAC had to open up a commercial branch in Uganda's capital city to attract corporate clients with larger balances to ensure BRAC would have enough money on hand to operate.
  • Tools that BRAC is currently using to provide financial inclusion services to people in Uganda are mobile money and biometric identification, which will help meet the requirement that Tier 2 institutions use a signature to verify identity. Since many of BRAC's clients are illiterate, biometric identification will eliminate this barrier.
  • Networks used by BRACC to meet its financial inclusion goals are MicroFinance Network, Partnership for Responsible Financial Inclusion, Propagate, and World Economic Forum.


Financial Inclusion Apps

GrabPay

Gojek

  • Gojek is another super app that began as a ride-hailing service, but has expanded its offerings to include the ability to order over-the-counter medications, purchase event tickets, pay bills and insurance fees, discover discounts and coupons, order laundry service, and contact professionals for other services like massage, hair styling, and makeup.
  • Gojek and GrabPay are competitors in the APAC region and has recently expanded into Vietnam, Singapore, and Thailand.
  • In terms of financial inclusion, Gojek recently entered into a partnership with Siam Commercial Bank to allow its 10 million users to try the Get wallet.
  • Businesses are able to transfer funds from their Gojek wallet to SCB for free and users can get digital loans or start a ride-hailing business without a taxi license.

Line Corporation

  • Line Corporation is a super app in Thailand that began as a messenger, but has expanded to offer financial inclusion services like GrabPay and Gojek.
  • Currently, Line Corporation is partnering with KBank on an undisclosed financial product, but it also intends to "launch its own in-app customer credit score to make microloans available in Japan and Thailand."
  • The in-app credit score will be "calculated with in-app user data and without violating any private data" because all private messages are encrypted end-to-end.
  • Line Corporation also has its own cryptocurrency, Link, which, while still unstable, offers users who normally would not have access to cryptocurrency the ability to use it.

Alipay and Ant Financial

WeChat

MaTontine

  • MaTontine is not a super app, but it does offer a variety of financial inclusion services to help low-income rural women in Senegal.
  • It is primarily an online savings group platform through which women can get microloans for things like starting a business, medical bills, equipment purchases, school fees, and other projects.
  • However, users can also get micro insurance policies, receive discounts on group purchases, and make use of peer-to-peer lending through the app's P2P lending platform.
  • Users can also get commercial loans through MaTontine and can participate in a type of auction that awards loans to the highest bidder.
  • The app also uses SMS to "remind all savings group members (and sometimes there are as many as 120!) to make regular payments, identify defaulting members, and reward lump sum winners every month."
  • Loan payments are made directly through the app and users can track their eligibility for other loans and insurance products on the app or by phoning into a call center.
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