{"id":25818,"date":"2018-08-10T09:00:00","date_gmt":"2018-08-10T13:00:00","guid":{"rendered":"http:\/\/cfi-blog.org\/?p=25818"},"modified":"2018-09-17T03:37:07","modified_gmt":"2018-09-17T03:37:07","slug":"financial-inclusion-is-the-glass-half-empty-or-half-full-part-2","status":"publish","type":"post","link":"https:\/\/cfi.accion-staging.flywheelsites.com\/financial-inclusion-is-the-glass-half-empty-or-half-full-part-2\/","title":{"rendered":"Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)"},"content":{"rendered":"
This post was originally published on the CGAP Blog<\/a> and is re-published here with permission.<\/em><\/p>\n As I stated in my previous blog<\/a> on the debate over the latest Findex<\/a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, \u201cFinancial Inclusion: Hype vs Reality<\/a>.\u201d As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.<\/p>\n Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven\u2019t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity \u2014 at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.<\/p>\n If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).<\/p>\n <\/p>\n <\/p>\n But here\u2019s where the caveat comes in. Findex\u2019s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.<\/p>\n Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex\u2019s activity rates for the region. A back-of-the-envelope exercise using GSMA\u2019s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa\u2019s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.<\/p>\n That\u2019s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.<\/p>\n <\/p>\n The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.<\/p>\n CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers \u2014 and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest State of the Industry Report on Mobile Money<\/a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.<\/p>\n Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination \u2014 savings, credit and payments.<\/p>\n On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn\u2019t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.<\/p>\n On credit, I am more sanguine for a couple of reasons. First, we can\u2019t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn\u2019t necessarily better. The main constraint to accessing credit shouldn\u2019t be whether someone has an account. It should be whether they can afford it.<\/p>\n Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don\u2019t expect to get a return on it, but you might use it to help establish a credit rating.<\/p>\n Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of \u201cuniversal usage\u201d is best applied to payments services rather than the other financial services where customers\u2019 needs are more varied.<\/p>\n <\/p>\n For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.<\/p>\n But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" This post was originally published on the CGAP Blog and is re-published here with permission. As I stated in my previous blog on the debate over the latest Findex, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear […]<\/p>\n","protected":false},"author":4,"featured_media":25820,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"regions":[59],"series":[3514],"types":[3123],"client":[],"topics":[3180,44,3250,3251,52,3329,3353,45,3172],"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":"Findex statistics on account dormancy rates in the developing world appear discouraging, but a deeper dive shows things are not so black and white, argues Greta Bull."},"post_default":{"description":""}},"meta_cta":{"download":false,"cta_button_text":"","cta_media":false,"cta_url":"","additional_links":false},"authors":[{"ID":26585,"post_author":"1","post_date":"2018-08-20 15:28:26","post_date_gmt":"2018-08-20 15:28:26","post_content":"","post_title":"Greta Bull","post_excerpt":"","post_status":"publish","comment_status":"closed","ping_status":"closed","post_password":"","post_name":"greta-bull","to_ping":"","pinged":"","post_modified":"2018-09-05 19:16:50","post_modified_gmt":"2018-09-05 19:16:50","post_content_filtered":"","post_parent":0,"guid":"http:\/\/cfi.accion.flywheelsites.com\/people\/greta-bull\/","menu_order":0,"post_type":"people","post_mime_type":"","comment_count":"0","filter":"raw","featured_image":false,"acf":{"title":"CEO, CGAP & Director, World Bank Group ","position":"staff","social_media_links":{"email":"","linkedin":"","twitter":""},"body":" Ms. Bull has 18 years of experience in development finance, primarily focused on SME Finance, Microfinance and Digital Financial Services. She has worked with both financial services providers and policy makers in Latin America, Central and Eastern Europe, Sub-Saharan Africa and South Asia. Her clients have included banks, microfinance institutions, MNOs and fintechs.<\/p>\n Prior to joining CGAP, Ms. Bull was a Manager for Financial Institutions Advisory Services at the International Finance Corporation. Other career highlights include serving as Director of the Finance, Banking and Enterprise Division at DAI Europe and holding senior level positions at the Eurasia Foundation.<\/p>\n Ms. Bull holds a Master in Public Policy degree from Harvard University\u2019s John F. Kennedy School of Government and an undergraduate degree in International Studies from the University of Washington.<\/p>\n","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":"greta-bull"}],"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":""},"related_content":{"cards":[{"ID":43594,"post_author":"87","post_date":"2021-12-08 10:47:57","post_date_gmt":"2021-12-08 14:47:57","post_content":"Nearly two billion people across the globe lack access to formal financial services and approximately 90 percent of these people live in developing countries. They are excluded mainly due to four predominant barriers preventing accessibility:<\/span>\r\n (Credit: Toronto Centre)<\/em><\/p>\r\nThe uptake of digitalization in each of the countries we surveyed\u00a0was slow\u00a0before\u00a0the pandemic. This could be due to the barriers individuals\u00a0face,\u00a0such as:\u00a0<\/span>\u00a0<\/span>\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\n\r\n \t
The challenges created by COVID-19 had a catalytic effect on accelerating FSPs' shift to digital delivery of financial services.<\/span><\/blockquote>\r\nIn light of the pandemic, the\u00a0<\/span>Branching Out<\/span><\/i>\u00a0program\u00a0commissioned\u202fa study,\u00a0<\/span>Resilient and Inclusive Financial Services Delivery During\u202fCOVID-19<\/span><\/i>,<\/span><\/a> through the Toronto Centre. The study\u202fexamines crucial lessons learned in responding to the pandemic in 2020-21. The program interviewed organizations striving to support vulnerable people to gain access to financial services during this trying time to prevent vital progress from being undone.<\/span>\r\n\r\nThe study\u202frevealed\u00a0two\u00a0major findings:<\/span>\r\n
\r\n \t
Percentage\u00a0<\/span>of FSP<\/span>\u00a0Respondents<\/span>\u00a0<\/span>Using<\/span>\u00a0the<\/span>\u00a0Delivery Channel Type<\/span><\/span>\u00a0<\/span><\/h4>\r\n\r\n
\r\n \t
Progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized during the pandemic.<\/span><\/blockquote>\r\nDuring the pandemic, progress\u00a0of digitalization and infrastructure\u00a0at the country level\u00a0seemed to influence which delivery channels were emphasized. For example,\u00a0FSPs in Zambia saw a rise\u00a0in\u00a0usage\u00a0of mobile banking services\u00a0from 26\u00a0percent pre-pandemic to 36 percent during the pandemic.<\/span>\u00a0In addition to this, Zambia FSPs used agents more to navigate the social distancing restrictions and to reach localized communities \u2013 as it was deemed more effective than bank branches.<\/span>\r\n\r\nIn Rwanda, the uptake of mobile banking before the pandemic was similar to that of Zambia, though Rwandan usage was bolstered by government efforts towards creating a \u201ccashless society,\u201d which further promoted non-face-to-face services. Rwanda FSPs, therefore, focused their efforts on mobile and internet banking.<\/span>\r\n\r\nIn Sierra Leone, internet banking rose from 7 percent to 17 percent during the pandemic \u2013 the largest increase seen in the report. However, because the country had faced similar challenges during the outbreak of Ebola, FSPs also managed to maintain a high level of face-to-face delivery, due to having the existing infrastructure to adhere to COVID-19 restrictions, such as social distancing and strict health and safety protocols. The experience that health authorities in Sierra Leone gained from the Ebola outbreak helped them prepare for COVID-19 even when little information was available.<\/span>\r\n
What Does the Digitalization of Financial Services Mean for Those at Risk of Financial Exclusion?<\/h2>\r\nThe report found that in many cases the digitalization of financial services, accompanied by greater digital literacy and accessibility, has been a promising development in inclusive finance. Consumer associations revealed that one of the greatest impacts of this transition has been in access to repayment modalities which would otherwise have been impossible and could affect customer access to future credit as well as FSPs\u2019 willingness to lend to affected groups.<\/span>\r\n
There is a real danger that more people could be left behind if these barriers aren\u2019t addressed.<\/blockquote>\r\nHowever, while digitalization can be seen as a natural progression that has been bolstered by the conditions created by the pandemic, barriers persist<\/span>,<\/span> including a lack of internet access and low financial and digital literacy. There is a real danger that more people could be left behind if these aren\u2019t addressed.\u202f<\/span>\r\n
Steps Needed for Continued Progress in Financial Inclusion<\/h2>\r\nComic Relief and Jersey Overseas Aid identified the following steps\u202fFSPs and regulatory bodies should take to continue making progress in financial inclusion:<\/span>\r\n
\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