{"id":35509,"date":"2019-06-17T18:29:09","date_gmt":"2019-06-17T18:29:09","guid":{"rendered":"https:\/\/content.centerforfinancialinclusion.org\/?p=35509"},"modified":"2019-06-18T15:35:09","modified_gmt":"2019-06-18T15:35:09","slug":"book-review-changing-the-world-without-losing-your-mind-leadership-lessons-from-three-decades-of-social-entrepreneurship","status":"publish","type":"post","link":"https:\/\/cfi.accion-staging.flywheelsites.com\/book-review-changing-the-world-without-losing-your-mind-leadership-lessons-from-three-decades-of-social-entrepreneurship\/","title":{"rendered":"Book Review: \u201cChanging the World Without Losing Your Mind: Leadership Lessons from Three Decades of Social Entrepreneurship\u201d"},"content":{"rendered":"
I was a 19-year-old college student when I first encountered Alex Counts, at the Global Microcredit Summit in New York City. Having just finished my first microfinance job, at Banco Solidario in Ecuador, I was understandably — maybe overwhelmingly — inspired, energetic, and hopeful. I wanted to build a career in microfinance, and I wanted to tell everyone about it.<\/p>\n
Several years later, as I introduced him for Grameen Foundation<\/a>\u2019s Annual Microfinance Awards Dinner, hosted by my graduate school microfinance club, it would have been the easiest thing in the world for a legend like Alex to condescend to me, put me in my place, or tell me to talk less and listen more. But he treated me like an equal, and more important, an ally in pursuing a shared vision of a more equitable world. Even after more than three decades in the field, he hadn\u2019t lost his passion or compassion. He wanted, more than anything, to encourage my enthusiasm, and share whatever insights might help me on my way.<\/p>\n That attitude permeates Alex Counts<\/a>\u2019 latest book, Changing the World Without Losing Your Mind: Leadership Lessons from Three Decades of Social Entrepreneurship<\/a>. The book\u2019s most noticeable trait is a desire to teach and encourage in the face of slow, difficult progress. The book, a 300-page combination of memoir, historical reference, and instruction manual for social impact work, skips from year to year and country to country, recounting anecdotes from the early days of the financial inclusion industry, and drawing out so many lessons that it\u2019s hard to keep track.<\/p>\n These lessons, described with breathless passion and often illustrated with vivid examples, form the book\u2019s backbone, dispensing wisdom on topics like effective fundraising, and the power of good storytelling to motivate and instruct others. He also spends considerable time acknowledging the mentors who helped him on his own journey, and relays the still-relevant ideas they developed decades ago. This theme of leveraging existing resources, in fact, shows up frequently in the book.<\/p>\n Even after more than three decades in the field, Alex hadn\u2019t lost his passion or compassion.<\/p><\/blockquote>\n \u201cAddressing the chronic underutilization of existing solutions and resources became a theme of my life. I came to appreciate how Muhammad Yunus, Sam Daley-Harris, and other mentors of mine focused at least as much on activating overlooked systems, idle assets, and forgotten people as they did on innovation,” Counts writes. “After all, aren\u2019t the very poor people served by microfinance themselves underutilized resources that can be made productive if provided with economic opportunity in creative and respectful ways?\u201d<\/p>\n One lesson that resonates for anyone who\u2019s led a project team is the importance of staying aware of your own shortcomings, and being honest about them to your team. Some of the book\u2019s most enjoyable moments come when Alex shares his vulnerability as a leader. In one story, he receives a lesson in humility from his lifelong mentor, Dr. Mohammad Yunus, during a respectful but stern feedback discussion in his early years in Bangladesh. In another, he acknowledges behaving like an \u201carrogant brat\u201d during his time working for Sam Daley-Harris at RESULTS.<\/p>\n For those of us who\u2019ve worked in the social impact field for a few years or more, Alex\u2019s enthusiasm rekindles our own optimism and energy like a strong cup of coffee on a cold morning. It reconfirms our reasons for entering the field in the first place. As Alex puts it:<\/p>\n","protected":false},"excerpt":{"rendered":" I was a 19-year-old college student when I first encountered Alex Counts, at the Global Microcredit Summit in New York City. Having just finished my first microfinance job, at Banco Solidario in Ecuador, I was understandably — maybe overwhelmingly — inspired, energetic, and hopeful. I wanted to build a career in microfinance, and I wanted […]<\/p>\n","protected":false},"author":75,"featured_media":35544,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"regions":[],"series":[],"types":[3123],"client":[],"topics":[44,3155],"personas":[],"institutional_partnerships":[],"clients":[],"program_teams":[],"acf":{"types":{"term_id":3123,"name":"Blog Post","slug":"blog-post","term_group":0,"term_taxonomy_id":3123,"taxonomy":"types","description":"","parent":0,"count":2142,"filter":"raw","term_order":"0"},"header":{"header_type":"post_aligned","post_cover":{"description":""},"post_aligned":{"description":"Alex Counts' combination \u201cmemoir, historical reference, and instruction manual\u201d for social impact work offers actionable wisdom and a \u201cfront row seat\u201d to financial inclusion\u2019s formative years."},"post_default":{"description":"Alex Counts combination \u201cmemoir, historical reference, and instruction manual\u201d for social impact work offers actionable wisdom and a \u201cfront row seat\u201d for financial inclusion\u2019s formative years."}},"authors":[{"ID":35511,"post_author":"75","post_date":"2019-06-17 18:03:00","post_date_gmt":"2019-06-17 18:03:00","post_content":"","post_title":"Alexandra Fiorillo","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"alexandra-fiorillo","to_ping":"","pinged":"","post_modified":"2019-06-17 18:17:59","post_modified_gmt":"2019-06-17 18:17:59","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=35511","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":false,"acf":{"person_name":{"first_name":"Alexandra","last_name":"Fiorillo"},"title":"Founder and CEO, GRID Impact","position":"staff","social_media_links":{"email":"","linkedin":"","twitter":""},"body":"","header":{"header_type":"people_aligned","people_aligned":{"description":""}},"blocks":false,"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""},"is_author":true},"url":"alexandra-fiorillo"}],"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"blocks":[{"acf_fc_layout":"testimonial","quote":"\u201c...most of the great problems facing humanity have been solved somewhere -- often in a small pilot project or in the laboratory. Issues like poverty, infectious disease, climate change, and deforestation have all been studied extensively, and, for many of them, proven solutions exist.\u201d","attribution":"Alex Counts, Author, Changing the World Without Losing Your Mind","image":"https:\/\/cfi.accion-staging.flywheelsites.com\/wp-content\/uploads\/sites\/2\/2019\/06\/Alex_head_shot2_Sept_07.jpg","size":"small"},{"acf_fc_layout":"text_block","heading":"","quick_links":false,"heading_label":"","subheader":"","body":" Lives do improve, we\u2019re reminded. Solutions do exist, all over the place, and it\u2019s our job to identify, understand and scale them.<\/p>\n If there\u2019s a shortcoming to the book, it\u2019s that it tries to do too much, offering so many nuggets of wisdom and interesting anecdotes that you wish for a few more pages to get into the details, and a more navigable structure. Many of the lessons are embedded in stories, making it hard to scan when looking for practical advice, though there are several lists of \u201cFavorite Tips,\u201d which help succinctly organize advice for the reader by thematic categories. Their titles should help explain their deeply introspective, almost meditative nature: \u201cSeven Favorite Tips to Help You Retain Your Beginner\u2019s Mind,\u201d \u201cFour Favorite Tips to Help You Practice Learning Acceptance,\u201d and \u201cNine Favorite Tips to Help You Practice Living Generously.\u201d<\/p>\n Readers unfamiliar with some of the people who show up in the book may feel the need to do some internet searches, as the book focuses on specific conversations and actions by a handful of personalities, including Alex himself. Conversely, anyone who knows the financial inclusion space well will be thrilled by the opportunity for a front row seat as history is being made.<\/p>\n Overall, Changing the World Without Losing Your Mind is a great read for those working in the development sector, especially those who are feeling frustrated, jaded, or in need of a bit of guidance and renewed enthusiasm. If after three decades in the social impact world, Alex has maintained his passion, then there might be hope for us all.<\/p>\n EDITOR’S NOTE: Alex Counts is a member of the CFI Advisory Council<\/a>.<\/em><\/p>\n"}],"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""},"related_content":{"cards":[{"ID":44129,"post_author":"87","post_date":"2022-03-15 16:34:42","post_date_gmt":"2022-03-15 20:34:42","post_content":"Imagine you\u2019re a young mother living on the outskirts of Kampala, Uganda. Due to unexpected medical expenses for your son, you decide to apply for a digital loan. You download a credit app that you heard about from a neighbor, answer a few questions about yourself, consent to have data on your phone shared, and wait 30 minutes. Then, you receive a rejection message: \u201cYour credit limit is 0 UGX.\u201d\r\n\r\nYou heard that having an active mobile wallet would increase your chances of being approved for a loan and made sure your MTN mobile wallet was active before applying. You\u2019re confused about why your loan application was rejected and wonder how to improve your future chances. Most importantly, you\u2019re still unsure how you will cover your son\u2019s medical expenses.\r\n\r\nUnderstanding the reasons behind credit decisions is increasingly more difficult as algorithms, rather than front-line staff, make and communicate outcomes. Complex algorithms<\/a>, fueled by alternative data, are driving finance decisions about and for customers -- from underwriting to insurance to eligibility for social protection<\/a>. As algorithms become more commonplace, we must look for ways to increase transparency around decisions and inform low-income customers about their options for rectification.\r\n While our sample may profess to trusting\u00a0digital lenders and their algorithms over loan officers, opinions become more complex when\u00a0specific\u00a0data inputs for credit decisions are highlighted<\/span>.\u00a0<\/span>Respondents were asked\u00a0the fairness of\u00a0different\u00a0data sources\u00a0that digital lenders\u00a0could use to assess creditworthiness.<\/span><\/p>\r\n <\/p>\r\n\r\n This\u00a0research was a series of 32 qualitative semi-structured interviews to explore consumer perceptions, behavior, and knowledge about the data ecosystem driving digital financial services in Rwanda. The respondents were drawn from a subset of 1,200 participants in the 2018 Smart Campaign\u2019s client voices survey. The interview guide was designed by the Center for Financial Inclusion (CFI) and carried out by\u00a0Laterite<\/a>, a development-focused research firm based in Kigali. Laterite drew the sample from a group that was among the digital vanguard, as measured by their applying for a digital loan in 2018, with the assumption that they would be in the best position to understand the data ecosystem. The sample size was initially 32,\u00a0but after data collection,\u00a0two respondents were dropped, and analysis was conducted on 30\u00a0\u2014\u00a0evenly split into 15 male and 15 female\u00a0respondents,\u00a0with an average age of 39.\u00a0Laterite conducted qualitative interviews in the first quarter of 2021 which, given the\u00a0COVID-19\u00a0pandemic, were conducted over the phone in Kinyarwanda to minimize contact between participants and researchers. Interviews were captured on a tablet using Survey CTO\u2019s computer-assisted telephone interview (CATI) software; after translation and data cleaning, CFI analyzed responses which included ex-post thematic analysis for some of\u00a0the\u00a0open-ended questions.<\/em><\/p>\n Caution is required in interpreting the results of the study, as they were not\u00a0intended\u00a0to generate widely generalizable results. Rather, they reflect the opinions and attitudes of a small group of urban digital consumers.\u00a0Additionally, the interview guide was an initial foray into understanding consumer perceptions and attitudes around these complex topics, and thus some of the respondents may have misinterpreted a question\u2019s intent.<\/em><\/p>\n"}],"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""}},"url":"trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users"},{"ID":43183,"post_author":"87","post_date":"2021-09-22 00:00:10","post_date_gmt":"2021-09-22 04:00:10","post_content":"Imagine you\u2019re a small business owner in March 2020. You support your household with a food stall at the local market and have just hired your first two employees to meet increased demand. You\u2019re able to put some of your income into savings, building a comfortable financial cushion for your business and your family. As the COVID-19 pandemic begins to reach your community, the market shuts down to prevent transmission of the virus and your previously healthy business income disappears nearly overnight.\r\n\r\nWithout the income the market normally provides, you cannot afford to continue paying your employees, so you let them go with a promise to bring them back after these temporary measures have passed. As it becomes clear that the pandemic will continue far longer than anticipated, you dip into your savings to pay necessary household expenses. The market eventually reopens, but with strict capacity restrictions and fewer customers than ever, and you cannot yet afford to hire either of your employees back. Months later, your savings have been exhausted, your income is a fraction of what it once was, and you find yourself skipping meals so that your children can eat. You turn to loans to keep your household and business afloat, but often skip loan payments in favor of paying household bills. Your once-thriving business is now barely able to keep you and your family housed and fed, and there\u2019s no end or help in sight.\r\nIn the Dark on Automated Decisions<\/h1>\r\nIn honor of World Consumer Rights Day<\/a>, CFI is researching how credit decisions are made and communicated to low-income consumers, the rights consumers deserve, and the tools they need to understand \u2013 and be able to challenge \u2013 those decisions.\r\n\r\nIn the not-so-distant past, most financial institutions relied on front-line staff to make and communicate decisions to customers. If a customer was rejected for a loan or insurance product, she could ask a loan officer to explain how her history was evaluated and could work with the officer to correct data errors. However, as digital models leveraging algorithms gain traction, the transparency that customers used to rely on from their in-person engagements with loan officers or agents has disappeared.\r\n
As digital models leveraging algorithms gain traction, the transparency that customers used to rely on from their in-person engagements with loan officers or agents has disappeared.<\/blockquote>\r\nBecause most customers are unaware of how an underwriting algorithm works or what data inputs are used, many customers are also unclear about how a decision is made or whom to ask for more information. This lack of clarity was evident from CFI\u2019s survey-based research<\/a> in Rwanda. Out of a sample of 30 digital borrowers in Rwanda, 16 respondents had been rejected for a digital loan but only 10 of those recalled an explanation for the denial. Of those 10 who received an explanation, six were dissatisfied with the provider\u2019s communication; some received only a basic explanation such as, \u201cYour credit limit is zero.\u201d\r\n\r\nWhen the full survey sample was asked to describe what an acceptable explanation of loan denial might look like, there was a clear ask for more specificity and more communication. A 52-year-old woman shared her experience: \u201cThey denied me a loan because I delayed to repay when I was in a hospital and very sick. If they had called to explain the reason for the denial, I would have explained my condition.\u201d A 38-year-old woman reasoned: \u201cWhen you delay to repay, they call to remind you about the loan. They should then do the same when you are denied a loan.\u201d\r\n
Help for Consumers: Legislation, Awareness, Support<\/h1>\r\nSo, what can consumers do in this increasingly digital era? Most data protection frameworks give consumers the right to access and rectify their data. However, our Rwanda research suggests that consumers are largely unaware of what is being inputted in the first place. While data protection efforts \u2013 like the 2019 Kenyan Data Protection Act that gives individuals the right to request the rectification of personal data that is \u201cinaccurate, out-of-date, incomplete or misleading\u201d \u2013 are a good first step, more needs to be done to communicate to customers about the inputs, decisions, and digital rights.\r\n
More needs to be done to communicate to customers about the inputs, decisions, and digital rights.<\/blockquote>\r\nMany nascent data protection frameworks offer consumers the right to be informed if they\u2019ve been subjected to an automated decision by an algorithm, for example. For instance, the Rwandan Data Privacy Law<\/a> mandates that individuals should be informed about the logic involved in their automated decision at the time of personal data collection. Brazil\u2019s Data Protection Act<\/a> gives consumers the ability to ask for a review of a decision made with their personal data taken solely through automated processing; included in the review should be the criteria and procedures used for the decision.\r\n\r\nBut what this will look like in practice, and how it will be enforced, remains to be seen. And given what we know about the challenges facing low-income consumers in accessing and feeling empowered to use grievance redressal mechanisms, there is concern that these data rights will not be fully exercised in a way that keeps companies accountable.\r\n\r\nConsumer advocacy organizations are a potential avenue to help raise the voice of consumers vis-\u00e0-vis their digital rights. For instance, our research<\/a> on government-to-person digital payments during COVID-19 found that civil society organizations often were the first to sound the alarm about digital systems failing or customers poorly served.\r\n\r\nWhether it\u2019s a mother in Kenya applying for a credit product to pay for medical expenses, or a farmer looking to insure his crops in the face of an increasingly unpredictable climate, we must support consumers\u2019 voices and increase transparency around how digital decisioning is made.\r\n\r\nAlong with other leading consumer advocates around the world and in partnership with Consumers International<\/a>, we\u2019re excited to participate at the Fair Digital Finance Forum<\/a> this week. Take a look at their program<\/a> to get a lay of the land and stay up to date with CFI\u2019s consumer protection<\/a> workstream.<\/em>","post_title":"Understanding the Decision: Consumer Rights and Algorithmic Decision-Making","post_excerpt":"","post_status":"publish","comment_status":"open","ping_status":"open","post_password":"","post_name":"understanding-the-decision-consumer-rights-and-algorithmic-decision-making","to_ping":"","pinged":"","post_modified":"2022-03-15 16:36:15","post_modified_gmt":"2022-03-15 20:36:15","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?p=44129","menu_order":0,"post_type":"post","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":"https:\/\/cfi.accion-staging.flywheelsites.com\/wp-content\/uploads\/sites\/2\/2022\/03\/iStock-1282482663.jpg","acf":{"types":{"term_id":3123,"name":"Blog Post","slug":"blog-post","term_group":0,"term_taxonomy_id":3123,"taxonomy":"types","description":"","parent":0,"count":2142,"filter":"raw","term_order":"0"},"header":{"header_type":"post_aligned","post_cover":{"description":""},"post_aligned":{"description":"CFI is honoring World Consumer Rights Day by calling attention to concerns around the transparency of algorithmic decisioning on products for low-income customers"},"post_default":{"description":""}},"authors":[{"ID":26330,"post_author":"1","post_date":"2018-08-20 13:50:31","post_date_gmt":"2018-08-20 13:50:31","post_content":"","post_title":"Alexandra (Alex) Rizzi","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"alexandra-alex-rizzi","to_ping":"","pinged":"","post_modified":"2021-03-02 17:16:39","post_modified_gmt":"2021-03-02 21:16:39","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/alexandra-rizzi\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":26638,"post_author":"1","post_date":"2018-08-20 15:28:56","post_date_gmt":"2018-08-20 15:28:56","post_content":"","post_title":"Jayshree Venkatesan","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"jayshree-venkatesan","to_ping":"","pinged":"","post_modified":"2021-11-16 11:38:17","post_modified_gmt":"2021-11-16 15:38:17","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/jayshree-venkatesan\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"}],"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"blocks":false,"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""}},"url":"understanding-the-decision-consumer-rights-and-algorithmic-decision-making"},{"ID":43666,"post_author":"75","post_date":"2021-12-14 00:01:27","post_date_gmt":"2021-12-14 04:01:27","post_content":"The Inclusive Fintech 50<\/a> application data from the third year signals continued progress on innovations to onboard low-income customers, despite the challenges posed by the pandemic:\r\n
\r\n \t
\r\n \t
Our survey focused on user perceptions of and opinions on consumer data in underwriting and the evolving data ecosystem. <\/span><\/blockquote>\r\nWhile mobile money was introduced in 2009 in Rwanda, the steady march to cashless experienced a rapid boost in 2020.<\/span>\u00a0<\/span>In mid-March 2020, during the lockdown, the National Bank of Rwanda (BNR) acted to minimize economic fallout by temporarily zeroing out charges on transfers between bank accounts and mobile wallets, zeroing out all charges on mobile money transfers<\/span>,<\/span>\u00a0and tripling the limit for individual mobile money transfers, among other measures. In addition to mobile<\/span>\u00a0<\/span>money<\/span>-<\/span>based digital credit,\u00a0<\/span>f<\/span>intech start<\/span>-<\/span>ups involved in lending have also sprung up in recent years, using alternative data sources to assess creditworthiness and extend financing solutions to the small and medium enterprise (SME) sector and the low-income population.<\/span>\u00a0<\/span>The country is on the cusp of finalizing\u00a0<\/span>a Data<\/span>\u00a0Protection and Privacy Law.<\/span>\u00a0<\/span>Emulating many aspects of the General Data Protection Regulation (GDPR), the law would\u00a0<\/span>give consumers new data rights\u00a0<\/span>such\u00a0<\/span>as the\u00a0<\/span>r<\/span>ight to\u00a0<\/span>o<\/span>bject, the\u00a0<\/span>r<\/span>ight to\u00a0<\/span>i<\/span>nformation that a provider has about a subject, the\u00a0<\/span>r<\/span>ight to correct or delete personal data, the\u00a0<\/span>r<\/span>ight to\u00a0<\/span>e<\/span>xplainability<\/span>,<\/span>\u00a0and the\u00a0<\/span>r<\/span>ight to\u00a0<\/span>data\u00a0<\/span>p<\/span>ortability<\/span>.<\/span> With all of this activity, the question remains, how do customers feel about the use of their data?<\/span>\r\n
Who is Fairer? Loan Officers vs. Digital Lenders<\/span><\/h2>\r\nThe decision of who receives and who is\u00a0denied credit\u00a0can be high stakes for individuals or businesses in need of a loan. Fairness in lending is embedded into financial non-discrimination law in many markets but does\u00a0<\/span>not guarantee non-discriminatory practices<\/span><\/a>, nor is\u00a0it\u00a0clear in many jurisdictions how it is enforced against digital lenders. For analog models, loan officers\u00a0\u2014\u00a0as the front-line client-facing staff of providers\u00a0\u2014\u00a0are seen as the agents of fairness (or unfairness) in an underwriting decision. For digital lenders, an underwriting decision is made off-site, often within minutes, and by a computer.\u00a0Participants were asked their perceptions of fairness of a loan officer compared to an automated system of a digital lender. Enumerators described fairness\u00a0as\u00a0<\/span>making unbiased predictions about qualifications of a good borrower\u00a0and not implicitly or explicitly discriminating against individuals or customer segments<\/span><\/i>. Participants were asked to rank the fairness of loan officers and automated systems on a scale from \u201cVery Fair\u201d to \u201cNot Fair at All\u201d and share which of the two types of lenders they trusted more.<\/span>\r\n\r\n<\/span>\r\n\r\nOf the 30 respondents, 12 described loan officers as \u201cSomewhat Fair\u201d and three responded with \u201cVery Fair.\u201d These respondents cited protocols and procedures at financial institutions that ensure creditworthiness assessments follow the stated rules, mentioning, \u201cLoan officers follow well-established terms and conditions for the loan,\u201d and \u201cThere are basic things that loan officers ask customers such as a collateral or employment contract.\u201d For the 11 who said that loan officers are \u201cNot Very Fair\u201d and the two who said \u201cNot Fair at All,\u201d favoritism from personal relationships or family connections and corruption came up repeatedly, with respondents reporting, \u201cIt is rare to request a loan and the loan officer serves you well knowing that he will get nothing in return,\u201d or \u201cHuman nature has a weakness of favoritism.\u201d<\/span>\r\n\r\nWhen asked about the purely digital lenders, 14 responded that digital lenders were \u201cVery Fair\u201d and an additional 14 said \u201cSomewhat Fair.\u201d As to why they were \u201cVery Fair,\u201d respondents said, \u201cComputers do not have feelings like human beings,\u201d and \u201cThey give you a loan without hesitation as long as you fulfill the requirements.\u201d Another respondent cited digital lenders\u2019 imperviousness to bribery, saying, \u201cPeople can be unfair if they know someone or if given a carrot (bribe), but automated computer programs cannot be induced.\u201d For the two respondents who ranked digital lenders as \u201cNot Very Fair\u201d or \u201cNot Fair at All,\u201d their answers were linked to the lack of explanation when a loan is denied.<\/span>\r\n
\u201cPeople can be unfair if they know someone or if given a carrot (bribe), but automated computer programs cannot be induced.\u201d <\/span><\/blockquote>\r\nGiven these results, it is not surprising that 80 percent of respondents confirmed that they would trust a digital lender\u2019s credit assessment over a human loan officer. Our results indicate that most respondents believe that digital lenders overcome the human frailties that lead to unfairness and bias in traditional lending.<\/span>\r\n
Fairness of Data Inputs for Digital Lending<\/span><\/h2>\r\n
Perceptions of Financial Data<\/h3>\r\nData types that hewed closely to financial behavior, such as financial history and mobile money transactions, were largely deemed fair by respondents. Respondents felt that these\u00a0<\/span>data sources conveyed financial status and financial discipline and needed transparency in the context of collateral-free digital lending.<\/span>\r\n\r\nUtility payments and airtime top-ups were not as favorably viewed, garnering only 10 and 12 positive responses out of 30, respectively. Respondents felt that utility bills were either too personal or private to share, that they should be siloed off from an individual\u2019s repayment capacity, or that their absence due to an individual\u2019s living situation (e.g., the prospective borrower is a tenant or lives in a rural village without utilities) should not negatively impact creditworthiness. Respondents were often very surprised that data like airtime top-ups, text messages sent, or utility payments could even be used to assess creditworthiness.<\/span>\r\n
\u201cThey should not care about where I get money for my airtime. Being a good borrower is repaying your lenders well. Trying to know how much airtime you use daily is like trying to know how you eat daily.\u201d<\/span><\/blockquote>\r\nRespondents felt that using information about airtime top-ups was an invasion of privacy. A 29-year-old man mentioned: \u201cThey should not care about where I get money for my airtime. Being a good borrower is repaying your lenders well. Trying to know how much airtime you use daily is like trying to know how you eat daily.\u201d Another said, \u201cIt is not the digital lender\u2019s business to know whether the customer has loaded airtime or not.\u201d Others felt that using airtime top-ups might exclude creditworthy groups of individuals: \u201cThere are casual workers who only receive calls. Therefore, topping up the airtime would be a waste. They rarely buy airtime and that\u2019s for emergency cases.\u201d<\/span>\r\n
Perceptions of \u201cAlternative\u201d Data<\/h3>\r\nWhen respondents were asked about the fairness of alternative data,\u00a0such as\u00a0<\/span>number of texts sent, number of apps (on phone), model of phone, battery use of phone, posts on social media, and geolocation, support dropped precipitously. None of the alternative data categories garnered more than six positive responses out of 30. Respondents cited reasons ranging from the belief that this data was private and none of the lender\u2019s business, to the risk that using this type of data would exclude certain groups, to the concern that this data type was unrelated to being a good borrower.<\/span>\r\n
\u201cDon\u2019t you know that there are people out there who buy a certain phone to impress others, yet they have nothing in their pocket or on their account?\u201d<\/blockquote>\r\nA 45-year-old male respondent unpacked why using cell phone type is a suspect choice for use in underwriting: \u201cIf they considered the make and model of a phone, there are people who would sell their fixed asset to buy an expensive phone that would allow them to have access to a bigger loan. Don\u2019t you know that there are people out there who buy a certain phone to impress others, yet they have nothing in their pocket or on their account?\u201d The frequency of text messages sent had almost universal disapproval, with only one respondent saying it was a fair source for underwriting. A woman from Kigali said, <\/span>\u201cMany people no longer use text messages these days, yet they can pay back the loan.\u201d Another commented that \u201cthe majority of text messages are sent and received by teenagers, especially those between 18 and 20. They have enough time to exchange text messages. Adults only send useful text messages.\u201d Others were concerned about exclusion: \u201cIf I am a trader who can send or receive 20 messages in 10 minutes depending on what I am selling, this will not be the same for the person who works as a cleaner, yet we can all repay the loan.\u201d Another female respondent commented, \u201cThere are people who did not go to school and therefore they can\u2019t read and write. Some people would be left out.\u201d<\/span>\r\n\r\nTaken together with the previous section, these findings suggest that while consumers might at first glance give a blanket approval of data-driven digital financial products, as the curtain is peeled back on how those products work, their opinions become more mixed.Social media\u2019s role in underwriting was predominantly seen as private and unrelated, with 80 percent of respondents saying it was unfair. \u201cThe data on what you post on Twitter or Facebook \u2026 are my private data and they should not have any relationships with my digital [financial] account,\u201d said a 32-year-old male respondent. \u201cYour social media activities have nothing to do with the loan. We post when we are sad, happy, or when we want to share our thoughts with people. This has absolutely nothing to do with paying back the loan or not,\u201d said a 32-year-old female respondent. However, six respondents did think that social media data was fair game, with one 29-year-old man conveying the sentiment of: \u201cWhat you post defines you. You can post something that would tarnish your reputation and they would not give you a single coin. Posts can make [providers] trust you or not.\u201d<\/span>\r\n
While consumers might at first glance give a blanket approval of data-driven financial products, their opinions become more mixed as the curtain is peeled back on how those products work.<\/span><\/blockquote>\r\n
<\/h2>\r\n
Perceptions of\u00a0Data Rights<\/span><\/h2>\r\nOmnibus data rights legislation, like the GDPR and the draft Rwandan Data Privacy law, enumerates rights for consumers \u2014 including the right to rectification, the right to data portability, the right to object, and the right to an explanation\/information behind an automated decision, like digital underwriting. But will Rwandan consumers, and others in emerging markets, have the awareness of how their data is being used to take advantage of these rights? The survey asked respondents about their experience when they were denied a digital loan, as well as the likelihood they would ask providers to rectify a data error.<\/span>\r\n
Right to an Explanation<\/h3>\r\nThrough\u00a0<\/span>the GDPR<\/span><\/a>\u00a0and what has come to be known as the\u00a0right to an\u00a0explanation, individuals\u00a0in many markets\u00a0have the ability to\u00a0obtain meaningful information about the logic involved in an automated decision\u00a0made by\u00a0an\u00a0algorithm or other advanced analytics, such as\u00a0the decision behind rejecting or approving\u00a0a digital loan application.\u00a0Article 39 of the\u00a0<\/span>draft Rwandan Data Privacy framework<\/span><\/a> requires that\u00a0providers inform individuals about the logic involved in their automated decision at the time of personal data collection;\u00a0however,\u00a0what this might look like in practice is\u00a0unclear.\u00a0To understand how explainability\u00a0is\u00a0currently\u00a0perceived by\u00a0consumers, respondents were asked about their experiences when denied a digital loan.<\/span>\r\n\r\n\r\n\r\nSixteen participants out of the\u00a030\u00a0had the experience of being rejected for a digital loan, and\u00a010\u00a0of those recalled receiving an explanation for the denial. A few rejected applicants described a somewhat basic explanation such as, \u201cYour credit limit is zero,\u201d without further details,\u00a0while others recounted more detailed instructions to \u201cclear the balance on a previous unpaid loan,\u201d before reapplying.\u00a0\u201cI only saw a message saying that I need to use\u00a0Mokash\u00a0for at least\u00a0three\u00a0months before applying for a loan,\u201d\u00a0said a 29-year-old female\u00a0respondent.\u00a0Six of the\u00a010\u00a0participants who received an explanation\u00a0were not satisfied\u00a0with the provider\u2019s communication. Despite mixed reviews of the provider\u2019s explanation,\u00a0eight\u00a0out of the 10 respondents who recalled receiving explanations\u00a0<\/span>changed their behavior in response. Some began repaying their existing digital loans in a timelier fashion, while others increased savings and transactions within their mobile wallets.<\/span>\r\n
\u201cWhen you delay to repay, they call to remind you about the loan. They should then do the same when you are denied a loan.\u201d<\/span><\/blockquote>\r\nWhen the full sample was asked what an acceptable explanation of loan denial might look like, there was a universal request for more specificity and more communication. A 52-year-old woman shared her experience, saying: \u201cThey denied me a loan because I delayed to repay when I was in a hospital and very sick. If they had called to explain the reason for the denial, I would have explained my condition. Also, if they had told me that the delay would disqualify me from getting a loan in the future, I would have done everything in my power to repay on time even though I was hospitalized.\u201d A 38-year-old woman reasoned: \u201cWhen you delay to repay, they call to remind you about the loan. They should then do the same when you are denied a loan.\u201d<\/span>\r\n
Right to Data Rectification<\/h3>\r\nAs memorialized in the GDPR and the many frameworks that it has influenced, <\/span>such as\u00a0Article 25 of Rwanda\u2019s draft data protection bill<\/span><\/a>, consumers now have the right to ask data processors to correct inaccurate information. If this legislation passes, for digital credit, consumers could request that a lender rectify incorrect or inaccurate data about them that feeds into their risk profile. Respondents were asked how likely they were to contact a digital lender if they realized they were using incorrect information or data about them.<\/span> Two-thirds of participants said they were either likely (seven respondents) or highly likely (13 respondents) to ask for their data to be rectified, while 10 participants said they wouldn\u2019t attempt it. For those who wouldn\u2019t pursue the rectification, the reason was not lack of empowerment but rather the tediousness of existing call centers, such as generic mobile money hotline numbers. \u201cThe hotline to call is always busy. In most cases you try up to 20 times without a response,\u201d mentioned a 35-year-old male respondent. Many respondents mentioned they would go directly to a service center and bypass the call center entirely.<\/span>\r\n
Conclusion<\/h2>\r\nGiven the growing importance of consumer data in inclusive finance and the potential for data-related harms, it is imperative for all stakeholders to understand the consumer perspective. This study \u2014 despite the small sample \u2014 illustrates that while consumers believe in the promise of digital finance, there are concerns around the data-related aspects of product design and the source of such data collection.<\/span>\r\n\r\nMore research is needed to\u00a0further understand\u00a0consumer perceptions and opinions\u00a0<\/span>about\u202fthe data ecosystem that increasingly determines their economic opportunities.<\/span>,\u00a0and\u00a0CFI is committed to exploring\u00a0the\u00a0topic further.\u00a0<\/span>Such insights\u00a0from consumers\u202fwould be\u00a0crucial information for market actors\u202fto:\u00a01)\u202fdesign better products and services;\u202f2) design customer-centric data protection regulation and supervision;\u202fand 3)\u202famplify\u202fthe voices,\u00a0concerns, and\u00a0experiences of\u202fthe most vulnerable.\u00a0Methodologically,\u00a0CFI\u2019s\u00a0work would also\u202faim to advance\u202f<\/span>how<\/span><\/i>\u202fto design\u202fqualitative and quantitative survey instruments\u202fto best elicit useful information from consumers\u202ffor such a\u202ffrontier and complex\u202ftopics.<\/span>","post_title":"Trust of Data Usage, Sources, and Decisioning: Perspectives From Rwandan Mobile Money Users","post_excerpt":"","post_status":"publish","comment_status":"open","ping_status":"open","post_password":"","post_name":"trust-of-data-usage-sources-and-decisioning-perspectives-from-rwandan-mobile-money-users","to_ping":"","pinged":"","post_modified":"2022-02-14 11:41:35","post_modified_gmt":"2022-02-14 15:41:35","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?p=43393","menu_order":0,"post_type":"post","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":"https:\/\/cfi.accion-staging.flywheelsites.com\/wp-content\/uploads\/sites\/2\/2021\/10\/iStock-1196492989.jpg","acf":{"types":{"term_id":29,"name":"Brief","slug":"brief","term_group":0,"term_taxonomy_id":29,"taxonomy":"types","description":"","parent":0,"count":14,"filter":"raw","term_order":"0"},"header":{"header_type":"post_cover","post_cover":{"description":""},"post_aligned":{"description":""},"post_default":{"description":""}},"authors":[{"ID":26330,"post_author":"1","post_date":"2018-08-20 13:50:31","post_date_gmt":"2018-08-20 13:50:31","post_content":"","post_title":"Alexandra (Alex) Rizzi","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"alexandra-alex-rizzi","to_ping":"","pinged":"","post_modified":"2021-03-02 17:16:39","post_modified_gmt":"2021-03-02 21:16:39","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/alexandra-rizzi\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":26344,"post_author":"1","post_date":"2018-08-20 13:50:31","post_date_gmt":"2018-08-20 13:50:31","post_content":"","post_title":"Tanwi Kumari","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"tanwi-kumari","to_ping":"","pinged":"","post_modified":"2021-03-02 17:20:49","post_modified_gmt":"2021-03-02 21:20:49","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/tanwi-kumari\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"}],"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"blocks":[{"acf_fc_layout":"text_block","heading":"About This Study","quick_links":false,"heading_label":"","subheader":"","body":"
MSMEs have been dramatically affected by the COVID-19 pandemic and continue to face challenges.<\/blockquote>\r\nFor many small business owners in emerging markets, this scenario is anything but hypothetical. MSMEs \u2014 particularly micro and small businesses \u2014 have been severely impacted by the COVID-19 pandemic, resulting in financial instability, business closures, and lack of employment for many low-income people. The financial outcomes of a shock, such as a pandemic, for micro and small enterprises can have consequential effects, as losses can directly impact MSME owners\u2019 household finances, community employment levels, and the ability to recover from future financial shocks or crises. MSMEs have been dramatically affected by the COVID-19 pandemic and continue to face challenges.\r\n\r\nIn May 2020, The Center for Financial Inclusion (CFI), as part of our partnership with Mastercard\u2019s Center for Inclusive Growth<\/a>, launched a six-wave, longitudinal survey<\/a> examining the impact of COVID-19 on MSMEs in four countries: Colombia, India, Indonesia, and Nigeria. CFI\u2019s survey is distinct as it focuses on the smallest businesses \u2014 with 95 percent of survey participants operating as sole proprietorships or microenterprises with fewer than 10 employees \u2014\u00a0and provides insights on changes over the course of a year, rather than a single snapshot in time. The survey leveraged CFI\u2019s framework on the financial health of MSMEs<\/a>, allowing a holistic look at the financial health and resilience of MSMEs throughout the COVID-19 crisis.\r\n\r\nWhile it is difficult to compare data from surveyed countries due to the varying impact of the pandemic in each country, the resulting government response, and differences among the samples in each country, the aim of this brief is to present emerging trends from the data available thus far to understand how MSMEs are faring in light of the COVID-19 pandemic.\r\n\r\nThe trends illuminated by CFI\u2019s data from this survey show that:\r\n
\r\n \t
MSMEs Have Been Severely Impacted by the COVID-19 Pandemic<\/h2>\r\nData from the first five waves of CFI\u2019s survey shows that financial health and resilience remain a challenge for MSMEs as the COVID-19 crisis continues. More than one year after the pandemic began, a significant share of businesses across all four markets continue to report reduction in profit levels. MSME owners are laying off employees or cutting employee hours to reduce expenses when financial pressure increases, which creates a ripple effect on the livelihoods of many. Other findings from the surveys show that people are reducing their number of meals, skipping loan payments, and turning to credit to survive.\r\n
People are reducing their number of meals, skipping loan payments, and turning to credit to survive.<\/blockquote>\r\nEarly in the pandemic, lockdowns and restrictions on physical movement led to significant income declines and business closures; although 74 percent of survey participants had steady or increasing profit levels pre-pandemic, that number dropped to just 16 percent by wave 1. Declining profits were largely attributed to government lockdowns and restrictions on movement in the first half of 2020, which led to 15 percent of MSMEs in our wave 1 sample to shut down. While data from subsequent waves shows that many businesses began to recover by the second wave, continued restrictions and uncertainty due to the ongoing pandemic proved those recoveries to be temporary and unstable, with surviving businesses reporting declining profits in later waves.\r\n\r\nIn India, 89 percent of MSME owners reported a decrease in profits in wave 1 and, although many saw an increase in profits in waves 2 and 3, profits significantly dropped again in wave 4 during June 2021 when India reported a heavy rise in COVID-19 cases. These profit trends are similarly reflected in the MSME\u2019s ability to cover essentials over the longer-term, showing that as profits decrease due to COVID-19, financial security drops significantly.\r\n
Figure 1. In India, as profits decrease, the ability for households to cover essentials also decreases.<\/h5>\r\n\r\n\r\n\r\n\r\nMSMEs are also struggling to return to pre-pandemic levels of employment. These businesses, which are a key employer of low-income and vulnerable workers, have reduced their workforce during the pandemic to cut costs. Now more than a year into the onset of COVID-19, the MSMEs surveyed in all four markets studied still have not returned to pre-pandemic employment levels. Based on the latest wave of data, the MSMEs surveyed in Colombia are operating with 48 percent of their pre-pandemic workforce, India with 58 percent, Indonesia with 63 percent, and Nigeria with 74 percent, indicating that employment continues to be fragile and MSMEs use workforce reduction as an early cost-cutting measure in times of financial instability.\r\n
Figure 2.<\/strong> MSMEs in our sample have not returned to pre-pandemic levels.\r\n<\/em><\/h5>\r\n\r\n\r\nIn response to the COVID-19 pandemic and its associated financial declines, MSMEs are also depleting their savings and turning to credit to survive. Early in the pandemic, 38 percent of business owners surveyed were unable to cover essential household expenses, leading to consequences such as food insecurity, with little improvement reported more than a year later. In Nigeria, for example, 22 percent of respondents in the latest wave reported that at least one member of the household has gone to bed hungry during the survey period and 36 percent reported that they had eaten fewer meals.\r\n
Figure 3.<\/strong> MSMEs are struggling to cover expenses with revenue, and the spike in COVID-19 cases in India between waves 3 and 4 resulted in a drastic decline in their ability to cover expenses with revenue.<\/h5>\r\n\r\n\r\nMore than 40 percent of respondents in Colombia, India, and Indonesia reported having two or more active loans in the latest wave of data, indicating that MSMEs are leaning heavily on debt to survive. Respondents also reported skipping loan payments as a coping strategy, signaling that many MSMEs that turn to debt to gain liquidity are having difficulty managing that debt. Savings and credit usage among survey participants also varied along gender lines: for example, in wave 5 in Nigeria, women had depleted a larger share of their savings compared to men (78 percent for women vs. 60 percent for men), yet women were less likely than men to rely on credit. Although the data doesn\u2019t clearly illustrate the reason for these gender discrepancies, potential explanations may include systemic barriers to accessing credit for women, as well as higher levels of savings, delaying the need for credit to maintain liquidity.\r\n
MSMEs are Largely Not Embracing Digitalization<\/h2>\r\nTo cope with the pandemic, many businesses across the world have turned to digital platforms<\/a> as a means of continuing business while physically distancing. However, even in markets with more built-out digital ecosystems like India and Indonesia, digital uptake is slow among our sample, perhaps pointing to the likelihood that the smallest firms are not able to take steps to digitize without some form of assistance.\r\n\r\nAcross India, Indonesia, and Nigeria, digital adoption was slow, and in some cases even declined. Usage in these three countries was inconsistent among respondents who reported having used a digital platform at least once; for example, in India, only 25 percent of those selling on a digital platform reported doing so during two or more survey periods. This suggests that MSMEs might test a digital platform to sell their product, but do not continue doing so, perhaps due to lack of digital literacy or challenges with onboarding.\r\n
Figure 4.<\/strong> Very few MSMEs report selling on digital platforms, and that number actually declined in all countries but Colombia where the sample skews toward more digitally savvy entrepreneurs.<\/h5>\r\n\r\n\r\nColombia was the only market showing a significant overall share and increase in the number of MSMEs selling on digital platforms. This is attributed to the comparatively robust digital product offerings of our Colombian partner financial institution, a fintech with a higher baseline of digital adoption among its clients. India\u2019s results show the fragility of the country\u2019s situation due to the pandemic, as wave 3 surveys were run February to March 2021, and wave 4 was from June to July 2021, two periods when the country experienced some of its largest impacts from COVID-19.\r\n\r\nWhile digitalization can help MSMEs to build resilience and scale their businesses through the access and use of digital financial and communication tools, the MSMEs surveyed are largely not adopting digitalization and as a result, not seeing potential benefits associated with doing so.\r\n\r\nGiven the small sample size of those selling on digital platforms, it\u2019s difficult to draw conclusions on the financial benefits of digital platform usage; however, we do see that MSMEs utilizing digital platforms in Nigeria were 1.2 times more likely to be able to cover business expenses with business revenue than MSMEs that did not sell on digital platforms, showing that digitalization may, in fact, be beneficial to business performance. Digitalization can help MSMEs to connect with customers, often in a wider geography than previously accessible. The use of digital can also benefit micro and small businesses<\/a> in managing transactions, efficiently moving and delivering products, and accessing financial services.\r\n
Ensuring financial resilience for MSMEs post-COVID-19 and beyond<\/h2>\r\nMSMEs are engines of growth and employment. They make up about 90 percent of formal and informal firms globally, and on average, account for about 70 percent of employment and about 50 percent of GDP<\/a>. \u00a0Their performance is crucial to the financial health of MSME owners, employees, and communities, particularly for low-income populations. The financial shock of the COVID-19 pandemic and its impact on MSMEs led to increased unemployment, food insecurity, and higher levels of debt among our sample, creating significant financial instability within low-income families and communities.\r\n\r\nCFI\u2019s data shows that MSMEs that have experienced previous shocks or crises, such as climate shocks, are having a more challenging time recovering from the financial effects of the pandemic. For instance, in Colombia, Indonesia, and Nigeria, MSMEs that were impacted by a climate shock (e.g., flooding, droughts, heatwaves, etc.) were more likely to report declining profit trends in the wake of COVID-19.\r\n
Figure 5.<\/strong> MSMEs impacted by climate shocks were more likely to report declining profits.<\/h5>\r\n\r\n\r\nThe cumulative impact of multiple shocks is exacerbated by the unexpected duration of the pandemic, leaving MSMEs more vulnerable than ever before. MSMEs require several types of support to help navigate the challenges of today and build resilience for the future. Data from CFI\u2019s surveys suggest the following areas of focus:\r\n
1. MSMEs need ongoing support from government assistance programs.<\/strong><\/h2>\r\nGovernments rapidly responded with a range of support measures<\/a> targeting MSMEs in 2020, such as job retention schemes, debt moratoria, and loan guarantees, as well as support to help advance digitalization and skills development. Many governments also introduced emergency cash transfer payments to low-income households to help them make ends meet during the crisis. However, the majority of the MSMEs in our sample report not receiving a cash transfer; for example, in Nigeria, Colombia, and India, less than 10% of MSME owners received a government cash transfer in the latest wave of data collection.\r\n
In Nigeria, Colombia, and India, less than 10% of MSME owners received a government cash transfer according to the latest wave of data.<\/blockquote>\r\nIn Indonesia, where the government expanded the social assistance system in response to the pandemic, the share of respondents that received government assistance fell back to pre-pandemic levels in the latest survey conducted in July 2021. The IMF reports<\/a> that most fiscal support measures ceased in low-income countries at the end of 2020. CFI\u2019s data shows that the impact of the economic crisis is far from over for MSMEs and low-income households and ongoing support will be critical to their survival in the near-term and setting them back on the path to financial health in the medium- to long-term.\r\n
2. MSMEs need access to a wide range of financial services, especially insurance and innovative social protection measures, to increase resilience to shocks.<\/strong><\/h2>\r\nWith the ongoing uncertainty of the pandemic, MSMEs are in an increasingly vulnerable position as savings continue to be deleted and multiple borrowing is on the rise. Less than 5 percent of MSMEs in the latest wave of data report having purchased insurance in response to the crisis. In addition to the important role of savings and credit, we must invest in expanding access to insurance to provide a safety net when a crisis hits. More Because insurance is a complex product that is difficult to test in small quantities, it remains out of reach for many low-income people globally. As such, more research is needed to explore the role of public-private partnerships that allow for risk sharing, along with innovations in risk assessments, delivery models, and product design. Financial institutions, policymakers, and investors must work together to ensure MSMEs have access to a range of financial services to help them thrive in the good times, and manage through the bad.\r\n
3. <\/strong>MSMEs need support with digital capacity building and overcoming high digitalization costs.<\/strong><\/h2>\r\nWhile some studies are finding that small businesses have accelerated their digitalization efforts<\/a> in response to COVID-19, CFI\u2019s sample which covers very small firms, many of which are customers of microfinance institutions, does not find the same levels of adoption. This points to an emerging risk that very small firms are at risk of being left further behind. The benefits of digitalization have been well articulated<\/a>: it can help firms engage with customers, support access to financial services, and manage supply chains and transactions. But on their own, few micro and small firms are able to make this transition to digital adoption without access to robust services and tools as well as support with digital capacity building and overcoming the barrier of the high cost of digitalization. For technology to make a lasting, consistent impact, MSME owners and the financial service providers that serve them need support to demonstrate the ways in which digital products can assist businesses and their customers, and also how to leverage tech touch business models to make technology approachable and accessible to people with differing levels of digital literacy and capability<\/a>.\r\n\r\nThe COVID-19 crisis has brought into sharp relief the precariousness of the smallest businesses in emerging economies. Investing in MSMEs and supporting their digitalization efforts will help these businesses navigate the challenges of the COVID-19 pandemic and help them prepare for future shocks and crises. Because MSMEs are critical for the employment of low-income people as well as the financial stability of families and communities, supporting MSMEs\u2019 recovery from this crisis will help ensure future financial health and resilience, as well as employment opportunities for vulnerable populations. Any plan for recovery must account for and prioritize MSMEs and aim to improve their financial position in a post-pandemic world, preparing them for future financial shocks and providing a more secure path to recovery and growth.\r\n\r\nThe Center for Financial Inclusion\u2019s (CFI) research on the financial health of MSMEs, conducted as part of our partnership with Mastercard\u2019s Center for Inclusive Growth<\/a>, aims to fill the data gap and ensure key stakeholders in financial services and policy have visibility into the wellbeing of MSMEs and their needs. In May 2020, CFI launched a <\/em>six-wave, longitudinal survey<\/em><\/a> examining the impact of COVID-19 on MSMEs in four countries: Colombia, India, Indonesia, and Nigeria. In each country, CFI is surveying MSME clients at one financial institution every other month for one year. <\/em>CFI interviewed nearly 3,000 MSME owners across the four countries in the first wave, and 1,600 MSME owners in each subsequent wave. The collection of wave 4 data in India was delayed due to the surge in COVID cases in late spring of 2021.<\/em>","post_title":"The Precarious State of MSMEs: Understanding the Impact of COVID-19 and Opportunities to Support their Recovery","post_excerpt":"","post_status":"publish","comment_status":"open","ping_status":"open","post_password":"","post_name":"the-precarious-state-of-msmes-understanding-the-impact-of-covid-19-and-opportunities-to-support-their-recovery","to_ping":"","pinged":"","post_modified":"2021-10-12 17:29:58","post_modified_gmt":"2021-10-12 21:29:58","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?p=43183","menu_order":0,"post_type":"post","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":"https:\/\/cfi.accion-staging.flywheelsites.com\/wp-content\/uploads\/sites\/2\/2021\/09\/iStock-1222898452-1-e1631828934487.jpg","acf":{"types":{"term_id":29,"name":"Brief","slug":"brief","term_group":0,"term_taxonomy_id":29,"taxonomy":"types","description":"","parent":0,"count":14,"filter":"raw","term_order":"0"},"header":{"header_type":"post_cover","post_cover":{"description":""},"post_aligned":{"description":""},"post_default":{"description":""}},"authors":[{"ID":38032,"post_author":"75","post_date":"2020-04-10 08:56:43","post_date_gmt":"2020-04-10 12:56:43","post_content":"","post_title":"Shradha Modi","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"shradha-modi","to_ping":"","pinged":"","post_modified":"2021-03-02 17:19:01","post_modified_gmt":"2021-03-02 21:19:01","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=38032","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":43021,"post_author":"87","post_date":"2021-08-16 10:15:42","post_date_gmt":"2021-08-16 14:15:42","post_content":"","post_title":"Katia Huayta Zapata","post_excerpt":"","post_status":"draft","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"katia-huayta-zapata","to_ping":"","pinged":"","post_modified":"2021-10-20 07:30:16","post_modified_gmt":"2021-10-20 11:30:16","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=43021","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":38340,"post_author":"75","post_date":"2020-05-01 13:47:50","post_date_gmt":"2020-05-01 17:47:50","post_content":"","post_title":"Lauren Braniff","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"lauren-braniff","to_ping":"","pinged":"","post_modified":"2021-03-31 15:35:49","post_modified_gmt":"2021-03-31 19:35:49","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=38340","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"},{"ID":42962,"post_author":"87","post_date":"2021-08-12 13:31:55","post_date_gmt":"2021-08-12 17:31:55","post_content":"","post_title":"Aeriel Emig","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"aeriel-emig","to_ping":"","pinged":"","post_modified":"2021-09-16 17:51:22","post_modified_gmt":"2021-09-16 21:51:22","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?post_type=people&p=42962","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw"}],"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"blocks":[{"acf_fc_layout":"call_to_action","cta":[{"text":"COVID-19 and MSMEs: Data and Analysis to Understand Impact","subtext":"What's the scale of the pandemic's impact and how are MSMEs coping? Dive deeper into CFI\u2019s data dashboards and analysis on Nigeria, Indonesia, Columbia, and India.","button_text":"Learn More","button_url":"https:\/\/cfi-staging-site.herokuapp.com\/research\/covid-19-and-msmes-data-and-analysis-to-understand-impact"}],"background":"light"}],"page_settings":{"":null,"email_sign_up":true,"show_related_content":true,"show_contextual_menu":false,"contextual_menu_cta":null,"replace_global":false,"hide_sticky_share":false,"hide_date_when_featured":false,"is_list_view":false,"premium":false,"preview_image":false,"description":""}},"url":"the-precarious-state-of-msmes-understanding-the-impact-of-covid-19-and-opportunities-to-support-their-recovery"},{"ID":42599,"post_author":"75","post_date":"2021-06-09 16:38:10","post_date_gmt":"2021-06-09 20:38:10","post_content":"In April 2021, a bill<\/a> that proposed licensing digital lenders was passed by the Kenyan parliament and is now pending approval from the national assembly. Among other things, this bill would require all digital lenders to submit product pricing to the Central Bank of Kenya for approval before launching, a move that seeks to lower predatory interest rates. Further, non-performing loans would be capped at twice the amount of the initial loan defaulted<\/a>, which means lenders won\u2019t be able to perpetually increase the amount to be paid back through late-payment fees.\r\n\r\nMuch has been written<\/a> on the fintechs that have flooded the Kenyan market since 2016. FSD and CGAP published alarming evidence<\/a> in 2018 showing that in addition to a saturated digital lending market, an increasing number of digital borrowers in Kenya became over-indebted, which furthered them into poverty traps<\/a>. Digital lenders such as OKash and Branch reportedly publicly shamed debtors by texting their friends, family, and colleagues<\/a>. Further, high-interest rates and non-transparent fees resulted in APR\u2019s above 400 percent<\/a>, making it more difficult for some low-income borrowers to repay. In some instances, repayment was possible, yet it meant sacrificing other payments like food, medicine, or school fees. And finally, millions of borrowers were reported to credit bureaus for loans smaller than $10<\/a>.\r\n\r\nDuring the COVID crisis, the Kenyan Central Bank issued a number of measures to ease the debt burden on borrowers, such as forbidding<\/a> unregulated mobile-based and credit-only digital lenders from reporting any late borrowers to credit bureaus. Although this helped ease debt stress on consumers during the crisis, this drove many digital lenders out of the market as levels of default skyrocketed, leaving many Kenyan borrowers underserved<\/a>. The entire loan market in Kenya shrank due to COVID-19; today, these platforms lend around 2 billion shillings a month<\/a>, compared to 4 billion shillings in early 2020.\r\n\r\nThe proposed bill by the Central Bank of Kenya unfortunately will not address the issue of making digital credit both safe and accessible. The bill focuses on product pricing only, and it doesn\u2019t address the underlying challenge of digital lending platforms: a weak credit assessment model. Such a model extracts large amounts of data from the borrower\u2019s phone<\/a> and runs it through algorithms that approve or deny the loan. Many digital lenders mitigate the risk of a light-touch credit assessment with above-market APRs and hidden late payment fees, thus being able to generate profit and returns to their investors.\r\n\r\nThe primary problem is digital lenders do not measure the capacity of someone to repay, but their willingness to repay, and these are drastically different concepts. Willingness refers to the genuine disposition of a person to pay back their loan. Capacity, on the other hand, refers to the person\u2019s ability to generate enough money in the future to pay back the loan without having to forgo essential expenses.\r\n
Digital lenders do not measure the capacity of someone to repay, but their willingness to repay and these are drastically different concepts.<\/blockquote>\r\nFor example, I might score very well on a digital risk assessment. My geo-trace shows I go to work every day, my call log shows I call my mom regularly, and my browsing history shows I do not engage in sports bets. These measurements indicate I am a responsible citizen who complies with her duties, suggesting that I have a high willingness to repay a loan. However, I might have astronomical medical expenses that the digital lender is unable to detect. Or I might be sending significant remittances to my family. Both of these relate to my repayment capacity and are measures that digital lending apps tend to ignore in favor of automated decision-making based on more readily available data.\r\n\r\nBy comparison, traditional banks run thorough credit risk assessments, sometimes so thorough that they are slow and expensive. These banks have credit committees and risk analysis departments that challenge relationship managers on the loan proposals they present. The result is that most people granted a loan have the means to pay it back. This method excludes the majority of the world\u2019s population from the financial system, however, it also ensures that most people who are granted a consumer loan actually have the capacity to repay.\r\n\r\nSo where do we draw the line? How do we expand access to credit to low-income people and informal workers and also protect them from default? How can we measure their capacity to repay in a cheap, digital, and rapid manner? Should we prohibit alternative, digital, phone-based metrics that only assess someone\u2019s willingness to repay?\r\n
A Possible Solution<\/h2>\r\nThe answer could be a measure in between. One idea is that the Central Bank of Kenya could only grant a license to digital lenders that incorporate the borrower\u2019s capacity to repay in their credit assessment algorithms. This means, finding a way to measure, prove and integrate the person\u2019s real income and expenses. Another option could be asking lenders to integrate proxies for repayment capacity. For example, mobile money records could be matched with the borrower's geolocation to determine where and why they are being paid and predict how stable his or her income is. Coupled with strong data protection measures, this and similar metrics could help curb the high default rate and loan-stacking among digital borrowers in Kenya without causing financial exclusion.\r\n\r\nFurther, as suggested in a publication produced by CFI<\/a>, the Central Bank of Kenya should withdraw a digital lender\u2019s license upon surpassing a threshold percentage of non-performing loans as a share of the total loan portfolio. This would force the lenders to improve their algorithms and creatively design more capacity-measuring metrics. And finally, the CBK should explicitly require licensed digital lenders to cross-check an individual\u2019s loan performance with each other before issuing further credit to prevent loan-stacking. Although the Digital Lenders Association of Kenya (DLAK) advocates for digital lenders to be able to receive and submit borrower information to credit bureaus, this practice has not addressed loan stacking in the past and only served to blacklist millions of borrowers for small amounts. Therefore, digital lenders should be allowed to view and report outstanding loans, yet with very limited power to blacklist a late borrower.\r\n
The CBK should explicitly require licensed digital lenders to cross-check an individual\u2019s loan performance with each other before issuing further credit to prevent loan-stacking.<\/blockquote>\r\nKenya cannot go back to the old bank-driven model which financially excluded most of the population, yet Kenyans cannot keep paying the price for the financial experimentation of tech startups. Digital credit should be responsible, affordable, and inclusive. With this new bill, the Central Bank of Kenya is getting closer to achieving it. However, the root cause of the problem is the evaluation algorithm and the business model that stems from it. Without addressing this, little will change for Kenyan borrowers.","post_title":"Digital Lending in Kenya: Willingness vs. Capacity to Repay","post_excerpt":"","post_status":"publish","comment_status":"open","ping_status":"open","post_password":"","post_name":"digital-lending-in-kenya-willingness-vs-capacity-to-repay","to_ping":"","pinged":"","post_modified":"2021-06-09 16:42:25","post_modified_gmt":"2021-06-09 20:42:25","post_content_filtered":"","post_parent":0,"guid":"https:\/\/content.centerforfinancialinclusion.org\/?p=42599","menu_order":0,"post_type":"post","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":"https:\/\/cfi.accion-staging.flywheelsites.com\/wp-content\/uploads\/sites\/2\/2021\/06\/Kenyan-woman-thinking-holding-a-white-phone-blue-shirt-capacity-willingess-to-repay.jpg","acf":{"types":{"term_id":3123,"name":"Blog Post","slug":"blog-post","term_group":0,"term_taxonomy_id":3123,"taxonomy":"types","description":"","parent":0,"count":2142,"filter":"raw","term_order":"0"},"header":{"header_type":"post_aligned","post_cover":{"description":""},"post_aligned":{"description":"Capacity needs to be much more of a factor in high-tech decision-making about who gets a loan. 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