10 Things CGAP Got Right or Wrong About Financial Access
The Center for Financial Inclusion’s project, Financial Inclusion 2020 is attempting to make predictions about the future of access to finance for the world’s low income people. So I was delighted to discover in a stack of old papers a CGAP Focus Note containing a rich set of predictions for the future of microfinance – from 2006.These predictions were contained in several sets of scenarios that examined possible futures for financial inclusion. For each topic, CGAP envisioned an optimistic scenario and a pessimistic one.
With six years gone by, it is possible to look back and see how the scenarios have fared. Acknowledging that in 2006 both the global financial crisis and the iPhone were in the future, CGAP did pretty well – both in anticipating important positive changes and warning about possible negative ones. Here are my comments on 10 of the predictions drawn from either the optimistic or pessimistic scenarios put forth.
1. Hundreds of millions of poor and unbanked clients gain access to cell phones. Absolutely. If anything, this prediction was too timid. At that time, CGAP foresaw much of the new access through shared phones, and they did not yet imagine the power and accessibility of smart phones.
2. Governments opt to make social transfer payments to poor citizens through banks and other financial institutions, using electronic payments and wireless technology. Increasingly true, as CGAP documented in a 2009 Focus Note. The recently launched Better than Cash Alliance is now turning these many scattered efforts into a global movement.
3. Regulators amend regulations that limit banking transactions to conventional bank branches, allowing other infrastructure to do double duty as virtual branches. Much success; in many countries. Many regulations have been passed to facilitate agent banking and mobile banking. However, in a number of countries, new regulations start but do not go far enough to fully enable branchless banking.
4. Governments work together with banks to develop common financial architectures like interoperable ATMs and POS machines and cell phone-based transaction networks. If only that were the case. Even though governments increasingly recognize interoperability as a priority, and in some places are working with regulators to find common solutions, broad interoperability remains elusive.
5. Countries like Sudan and Zambia…remain on the fringes of the wireless revolution. Surprise! The wireless revolution has clearly impacted all countries, including those torn apart by war and disaster like Haiti, Sudan, and Afghanistan. Mobile money is moving forward fast in countries that have had few alternatives in the past. Earlier this year, Accion and Omidyar invested in a Zambian mobile money company, one of the rising stars in the region.
6. The high fixed costs of technology infrastructure allows large banks to push out small players. Not really. This was a prediction from the negative scenario, but things are turning out to be more aligned with the positive scenario. Increasingly, the “rails” of technology infrastructure are seen as enablers for smaller players to experiment or offer highly tailored services. The number of new starts with innovative business models that use technology is burgeoning.
7. Interest rate ceilings are imposed at levels too low for private microfinance players to survive. Too dire, but threats remain. In a number of cases where political figures have made noise about interest rate caps, they have eventually settled on reasonable positions, recognizing that they in fact want the microfinance sector to carry on, with the result that caps are set at somewhat realistic levels. This issue never disappears, however, and has recently raised its head in new countries.
8. Over-indebtedness becomes a major problem. Most of this lending is done by purely commercial actors, not socially motivated financial institutions. Yes, yes, and no. What was not expected was the extent to which socially motivated financial institutions, not just explicitly commercial ones, were also part of the creation of microfinance bubbles.
9. In many countries, rather than protecting consumers, these regulations [consumer protection regulations] further restrict access to finance. What a difference a crisis makes. It has now become widely accepted that consumer protection regulation is needed to ensure an orderly marketplace that prevents abuses and that in such a marketplace, service providers can operate on a more stable footing.
10. User-friendly products, some tailored for illiterate and semi-literate customers, attract many poor clients. Let’s celebrate the successes that have occurred in designing more client-friendly products. At the same time many more opportunities remain. If anything, tailoring products to client needs will be an even greater focal point for financial inclusion for the next decade. This is the heart of CGAP’s work program, Clients at the Center.
To read the original focus note and evaluate many more of CGAP’s predictions for yourself, click here.
-------- The author is the managing director at the Center for Financial Inclusion.