MICROFINANCE PUBLICATION ROUND-UP: Household Responses to Village Bank Access in Laos; Mobile Banking in Kenya; The Role of Banks in Driving Financial Inclusion

“Household Responses to Access to Finance Through GIZ-AFP Village Banks;” published by the Laos-Australia Development Learning Facility; February 2016; 50 pages; available at: http://ladlf.org/images/publications/030516_LADLF_GIZ_HH_Response_to_A2F_Final.pdf

This study indicates that the portion of households saving money increased from 79 percent to 100 percent after the introduction of a village bank in Laos. Furthermore, the households changed the way they access credit for emergencies. The rate of using money lenders fell from 43 percent before the establishment of the village bank to 25 percent after, and the rate of borrowing from family and friends fell from 29 percent to 11 percent. The usage of loans from the village bank increased from 0 percent to 66 percent. In addition, the launch of the village bank was correlated with consumption smoothing, enterprise development and people feeling more confident and in control of their futures. The authors conclude that village banks are a replicable and scalable method for providing access to finance. In addition, they support women’s economic empowerment by enabling enterprise development and engaging women in governance roles. Looking to the future, the study proposes strengthening financial literacy, improving the business enabling environment and building the capacity of NGOs to support village banks.

“A Quantum Leap Over High Hurdles to Financial Inclusion: The Mobile Banking Revolution in Kenya;” by J. K. Rosengard; published by John F. Kennedy School of Government Harvard University; June 2016; 24 pages; available at: http://www.swiftinstitute.org/wp-content/uploads/2016/06/SWIFT-Institute_Financial-Inclusion_FINAL-1.pdf

This paper elaborates on the use of mobile phones in increasing access to and usage of financial services in Kenya. Mr Rosengard analyzes, among others, Safaricom’s M-Pesa, a mobile phone-based money transfer and payment service, which 22 million people use to access via 90,000 agents in Kenya. According to the author, the success of M-Pesa is a result of many factors, including political and economic context, demographics, telecommunications infrastructure, lack of other affordable consumer options, regulatory policies, and skillful management and marketing of M-Pesa. However, the author cites three challenges to further financial inclusion via mobile financial services in Kenya: (i) facilitating increased competition; (ii) the adoption of digital services by microfinance institutions; and (iii) increased consumer protection. According to Mr Rosengard, while much of Kenya’s success can be replicated, the challenge lies in how to adjust the model to incorporate “home-grown innovative solutions to address local constraints”.

“The Business of Financial Inclusion: Insights from Banks in Emerging Markets;” by S. Cheston, T. Conde, A. Bykere, E. Rhyne; published by Institute of International Finance and the Center for Financial Inclusion; May 2016;  67 pages; available at: http://www.centerforfinancialinclusion.org/storage/documents/IIF_CFI_Report_FINAL.pdf

This study examines the role of banks in driving financial inclusion. The authors argue that advances in technology are allowing banks to create profitable business models to serve unbanked and underbanked populations, which was recently estimated as a USD 380 billion market opportunity [1]. Based on interviews with 24 emerging market banks, the authors provided seven opportunities and seven barriers with regard to financial inclusion. Among the opportunities are: (i) “Start with the underbanked and use data to understand their needs”; (ii) “Develop the ecosystem through bank-led partnerships, increasing customer convenience while sharing costs and risk”; and (iii) “Enable remote account opening using digital IDs, supported by proportional, tiered KYC [Know Your Customer] requirements.” Examples of barriers are:  (i) “Lack of trust – in banks, in digital, in agents – leading to lack of uptake”; (ii) “Lack of financial capability and digital literacy – leading to lack of usage”; (iii) “Agent networks – building them, equipping them, ensuring their quality”; and (iv) “Lack of coordination among government bodies.”

By Kevin van den Brink, Research Associate

Sources and Additional Resources

[1] Laos-Australia Development Learning Facility, Publications, “Household Responses to Access to Finance Through GIZ-AFP Village Banks

[2] Harvard University John F. Kennedy School of Government, Publications, “A Quantum Leap Over High Hurdles to Financial Inclusion: The Mobile Banking Revolution in Kenya

[3] The Institute of International Finance and the Center for Financial Inclusion, Publications, “The Business of Financial Inclusion: Insights from Banks in Emerging Markets

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