Managing Director, Bankable Frontier Associates
Executive Vice President, Inter-American Development Bank
Senior Fellow and Director of the Women and Foreign Policy Program, Council on Foreign Relations
Julie Katzman, executive vice president of the Inter-American Development Bank, and Daryl Collins, managing director of Bankable Frontier Associates, joined Women and Foreign Policy program director Rachel Vogelstein to discuss how inclusive finance can reduce poverty and strengthen economic growth. The discussion highlighted insights from a recent IDB-supported study on women and savings in Chile as well as new research on financial management in the developing world.
(Superior Transcriptions LLC, www.superiortranscriptions.com)
VOGELSTEIN: Good afternoon, everyone. Good afternoon. Thank you for braving the wind chill today, and welcome to the Council on Foreign Relations. My name is Rachel Vogelstein. I’m the director of the Women and Foreign Policy Program here at CFR, where we’ve worked for more than a decade to analyze the status of women and girls, and how it relates to U.S. foreign policy objectives, including prosperity and stability.
I want to begin by expressing my gratitude to Noa Gimelli, the director of the Women’s Economic Opportunity Initiative at ExxonMobil, for her leadership on women and economic development, and for her continued support for the Council’s work, including today’s meeting.
This afternoon’s ExxonMobil Roundtable on Women and Development is focused on financial inclusion and economic growth, and it comes at a critical time for global development—at the dawn of a new set of Sustainable Development Goals, which aim to end poverty by 2030, to combat inequality, and to reach those who are farthest behind. As implementation of this ambitious SDG framework gets underway, financial inclusion remains an elusive goal.
Two billion people, or 38 percent of all adults worldwide, are unbanked. The majority live in the developing world, where distance and cost and documentation requirements and the like too often hinder individuals from opening accounts. We know that gender discrimination and financial dependence on male guardians can further limit access to formal finance. And, indeed, more than half of the world’s unbanked today are women.
This afternoon we will discuss why financial inclusion is critical to economic growth, how to ensure that women are not left behind in international efforts to promote financial inclusion, and we’ll analyze what needs to be done to fully implement the financial inclusion agenda the international community has agreed to in recent years.
We are very fortunate to have with us two preeminent experts on this topic today. First, we are pleased to be joined by Julie Katzman, the executive vice president and chief operating officer at the Inter-American Development Bank, the largest provider of development finance to the public and private sectors in Latin America and in the Caribbean. Julie is a longtime investment banker who focused primarily on private equity, and has considerable expertise in financial structures and products across numerous industries.
We are also very fortunate to be joined by Dr. Daryl Collins, the managing director of Bankable Frontier Associates. Daryl is the co-author of the seminal work “Portfolios of the Poor” and the principal investigator of the “South African Financial Diaries,” a yearlong household survey examining financial management in poor households. Dr. Collins began her career as an emerging-market economist at a New York investment bank before moving to South Africa in the late 1990s.
Welcome to both of you. Thanks for being here today.
Julie, I’d like to begin first with you and with, first, principles. As countries begin to develop and implement strategies to achieve the SDGs, how should we think about and define financial inclusion? What does it mean to reach scale in this area? Does that necessarily mean including everyone? And how should we structure programs in a way that creates financial sustainability all across the value chain? Would love your thoughts on defining financial inclusion.
KATZMAN: OK. Small set of questions. (Laughter.)
First, let me just say, you know, thank you for having me and us, particularly because I will say that when I moved from being an investment banker to coming to the IDB, when I first got there I ran what was the grant arm of the IDB, and one of the first things I read was “Portfolios of the Poor.” So I’ve always been a huge fan of Daryl’s.
And it was really interesting, because when I first started talking to our directors about savings and the importance of not just access to credit, but access to other financial services like savings and insurance, many of the directors, who had been in the development business—which, really, I hadn’t, except as an avocation—looked at me like I was speaking Greek. You know, what are you talking about? You’re talking about really poor populations. Why are you talking about savings? And it was really only through looking at the work that Daryl had done and showing people “Portfolios of the Poor” that we were able to begin to expand the conversation beyond microcredit and the access to credit.
And so, when you—when you say what is financial inclusion, you know, I think there are probably a zillion different definitions. And I’ll just try to pick a couple of key points for us, which is it isn’t just access to credit and it isn’t microcredit—and I think for, like, 10 or 15 years, those almost were synonymous with each other—but, rather, it’s having the right financial service available at a reasonable cost that allows you to expand the interactions that you have across society—government, the private sector—to be able to do the things you need to do, make yourself and your enterprise more productive, and create new opportunities. Because I think that’s the difference, in many ways, between things that people call financial inclusion that when you, you know, sort of dig under the surface, you find may look that way on paper but aren’t really changing people’s lives.
And I’ll just give a quick example, which is to say that many, many countries have gone to delivering conditional cash transfer payments on a debit card—on a card, but—and linked to an account. But if you even barely scratch the surface, you find that all that is is an account in name only. People get the CCT, they withdraw 100 percent of the money, and that is where their interaction begins and ends with the financial system. So, you know, I think that what’s critical is really looking at what do you want this financial inclusion to translate into. It’s not just having a bank account. And we’ve got the Financial Inclusion 2020 Initiative, and thinking beyond how many people have bank accounts to what are they doing with them and what does it mean I think is important.
Why don’t I stop there for a moment.
VOGELSTEIN: Daryl, let’s turn to you to jump in on the conversation. We’re talking about defining success, not just by thinking about access but also thinking about usage. So how should we think about a theory of change for financial inclusion at the micro level? And how does it relate to other facets of people’s lives, for example, with respect to health or education or sanitation and the like? Give us your take.
COLLINS: Is this on already, or?
VOGELSTEIN: It’s on.
COLLINS: OK, great.
Well, thanks very much. It’s terrific to be here, and it’s also terrific to have this opportunity to talk about some of the gender work that my colleagues and I at Bankable Frontier Associates have been working on.
At BFA, we are a for-profit consulting company that is focused purely on financial inclusion. So this is our bread and butter. It’s all we really think about. And therefore, we worry a lot about wondering how far it stretches and how narrow it might be.
If you look at the industry, so to speak, or the sector—people who work in the field of financial inclusion—we’re probably at a moment where we’re all slightly shaken up because at first, as Julie mentioned, there was this long journey that began with microcredit, and then it evolved into recognizing that the poor can save. And all along there’s been some wonderings about how can we grow insurance capabilities or products at scale. But somewhere along the line in the implementation of a lot of the surveys that we do to track financial inclusion, we’ve come to realize that it has grown much more quickly—or inclusion has happened, by a certain definition, much more quickly—than we might have expected.
And the reasons for that are things like M-PESA in Kenya. For those who aren’t familiar with this—with this topic and the concept of M-PESA, it’s just simply sending mobile money between one phone and another. And suddenly, if you say that people who have M-PESA are included, well, then the number start to look so good that you wonder what the heck we’re doing. But then, again, when you look below the surface, it is really only used for one use case, very similar to what Julie mentioned with the CCTs on a debit card. People use it to receive money, but then they don’t really use it for anything else.
So where do we go from here? One direction that we might go in is to say, well, we need to push usage, which I think is something of a not very good way to express it, really, because—for two reasons. First of all, I mean, you may incentivize usage, but that usage may not be useful in people’s eyes. Secondly, there are plenty of financial instruments that just sit there and you don’t use it. What about that nice big pile of cash that you’ve put aside? You don’t use it, but it’s still desperately important to you. So usage is not always necessarily our next level of success.
And so the industry as a whole has started, then—again, and this echoes something of what Julie just said—looking beneath the surface and saying, financial inclusion for what purpose? Does it make people’s—do you see education levels improve because you have better financial services to manage your money, to meet school fees, especially secondary school fees in many places? Do you have better health outcomes because you have financial services to better manage your money to meet heath needs? Do you have better measures of well-being in terms of the sanitation with the type of housing that you live in because you have better financial services?
And the trick in the financial-inclusion industry right now is that there’s very little on a microstudy level that actually really ties that impact back to financial services. We know it’s there. It underpins everything. But that exact theory of changes goes slightly into a black box, and that’s really where we are now. We know that we need to stretch further than just getting people either included or using; we need to know more that they are actually improving people’s quality of life and their opportunity outcomes.
KATZMAN: So there’s an interesting intersection there, which is that in Colombia, when President Santos was elected the last time around, one of the big commitments he made was to increase broadband access throughout the country. And interestingly enough, while we all could sit in a room and go, well, of course you need broadband—that’s the future, that’s how you can be more productive, that’s how you participate in the world economy—there’s a parallel, which was, what was the demand case? And they went about building, in effect, applications to create demand that actually led to better business outcomes, in effect, because it was the small tienditas throughout Colombia that they sort of drove this on, and then education, and then certain other things. And interestingly, we see sort of the same thing here, which is, as you said, you know, what’s the case for demand, right?
So, you know, we can use an example in Colombia again, on—there’s a financial institution, Davivienda, and it created a product for low-income recipients of conditional cash transfers. And they won a bid with the government, and lo and behold 2 million people all have accounts and all have debit cards. And over 50 percent had zero balances in what my colleagues have dubbed—what I—which I love—the curse of the empty wallet. (Laughter.) And it is a curse for the financial institution because you cannot make money if that’s actually what happens, right? So 50 percent used it once a month, took the money, end of story.
So they actually did something really smart. They sort of went to a human-centered design concept. They put people into many of the small villages and they said, OK, what actually is the need? And they redesigned the product, and they redesigned the product so that it had basically zero cost to people and it allowed them to do things that they really needed to do, OK? So they could run—they could run their financial life, to the extent they started to do this, through the ATM without actually having to interface with a person. They could actually very easily in the ATM pay some bills. They could very easily through the ATM actually start to designate some of the money that came in into different folders for other uses—education or Christmas.
And you started to see a change. And now the cumulative balance that the recipients represented in the course of one year went from about $80 million to, I think, $450 million, and the overall volume of transactions went up almost five times by the end of 2014. But they were still losing money as a financial institution. So, you know, that’s the other side of the ledger here, right?
So they did a couple of things. They actually recognized that maybe only looking at that part of the market that’s receiving CCTs wasn’t sufficient. Then, in 2015, they went after lots of medium- and small-sized enterprises; 3,200 of them decided they would pay people using autopay into these accounts. And so now, instead of being about 50 percent of their accounts, it’s only—CCT recipients only represent about a third of the accounts, and they became profitable. So all of this—in this product.
So all of this contributed, and they started to add more and more functionality. So the—so the cards became more useful. The accounts became more useful. I think it goes to all of these pieces. And now you look at other examples and you start to say, OK, how do you make small businesses begin to be part of this ecosystem? How do you build this ecosystem out?
And then there are different parts of the value chain, as you asked earlier, which is companies—the huge distribution companies, Backus and Johnston beer, Coca-Cola, et cetera—they spend huge amounts of money collecting cash in all of the developing world regions. And the Andes being a big part of our geography makes driving things around very costly. And so they are becoming important parts of this overall ecosystem so that they can—in March, the largest beer distributor in Peru will start taking payments from all the owners of very small shops using the new multi-stakeholder mobile money platform in Peru, saving a ton of money, and therefore being able to create financial incentives for all of those shop holders to start to adopt this. And it’s—you know, then that’s the domino that falls and lots of other dominoes fall.
So I think each one of these pieces tells you that it’s not just focusing on one part of the—of the user population. You have to think of this as an ecosystem. You have to build out on the demand side, you have to build out on the supply side in order to be able to create something that really does represent inclusion.
VOGELSTEIN: So we’re defining financial inclusion in a way that moves beyond access, that moves beyond usage to think of usage that’s useful.
Julie, you just mentioned the importance of thinking about the users and expanding that definition. Let’s talk about women for a minute. Between 2011 and 2014, we saw about a 20 percent drop in the number of unbanked adults worldwide. And yet, despite that significant progress, over that same time period the gender gap in terms of access to bank accounts remained exactly the same. So how can we ensure that efforts to promote financial inclusion actually include women? Why is that so important? And what are you doing about that at IDB?
KATZMAN: So I have a great fear on this, because there is this Financial Inclusion 2020 plan that the World Bank and the IFC are very involved in, and as far as I can tell there’s no sub-category of how many of the people who become included are women. And if you look at various individual country financial inclusion plans—take India—there are no—not only are there no requirements relative to gender, but the whole plan is to have one account per household. So you can imagine that if the goal is one account per household, the odds are in that country that’s going to be a man. So that plan will almost definitionally increase the exclusion of women.
And so I think some—some countries are better than others, right? But I think it’s a really critical moment to say, well, hang on, if we’re running out there and saying let’s get 2 billion people included, well, I think we should be saying let’s make sure that 50 percent of them are women.
And, you know, we actually are lucky to be in a region where it has the smallest gap between men and women. It’s relatively close. But if you go country by country—and we have the case of Chile, which is the only country in the world that’s done sex-disaggregated data for 15 years, and there are some very interesting things to learn there. You know, countries will say, well, I don’t think there’s a problem. But they don’t think there’s a problem because there isn’t the data. And then you can flip that around and say, OK, so let’s assume you’re right and there isn’t a problem; well, if you’re going to launch a financial inclusion plan, let’s make sure it stays 50/50, then. In the absence of anything else, let’s make a target that’s 50/50.
So I think, you know, everybody has to do a better job of increasing the visibility of this because—with government because most of these plans, including the ones in our region, do not have sub-targets for women. And that could lead to very bad outcomes.
VOGELSTEIN: I want to quickly follow up on Chile, which you just referenced, and this question about why it matters to include women. Chile, as you recognized, is the very first country to disaggregate its data on women in banking. Can you tell us a little bit about, first of all, why Chile decided to gender-disaggregate these data? And secondly, what can we learn about the effect of including women in the financial sector?
KATZMAN: So it’s very interesting, actually. Most people are probably familiar with results-based budgets. And in Chile, that was called the performance management system. And in 1998, there was a government-wide decision basically mainstream gender throughout the budget. And so all the different parts of government chose how they would do that. And the financial system chose this, chose disaggregating data, collecting that data. Ironically, two things, one, it didn’t last. So in the rest of the Chilean budget, gender did not continue to be mainstreamed. But this little island of data continued on its merry way.
And oddly, no one paid it any attention. No one really knew what was there. And the current supervisor of banks, when he got the job a couple years ago, he sort of said, OK, so what have we got? And people threw all these things on his desk. And he went, well, isn’t that interesting? And then we sort of started talking with them as well, my colleagues here, and said, no, that’s not just sort of interesting, that’s really interesting. And of course, when Michelle Bachelet was re-elected it became even more interesting, and something to do something with.
But what did it tell us? It told us some very interesting things. It told us that the gender gap between men and women in credit existed, continues to exist, but has narrowed in Chile. And so there are fewer borrowers. The aggregate portfolio is mostly men. And the average-size loan, as you can tell from the one plus two thing, is much smaller for women. So each one of these things actually has led to some policy response. So the government looked at that and said, ah, OK, we’re going to start this program that is about growing—for women—growing their enterprises. So, you know, we’re living in a world where economies are growing slowly, where tax revenue is down, fiscal pressure is up.
So if you can find the key to unlock more growth in women’s businesses, that’s pretty important for the country. And so they’re using that piece of data to go on that front. We also saw that women save more than men. There are more savings accounts and they’ve bigger balances. Now, interestingly, there’s a housing program in Chile that subsidizes a piece of the purchase of a house. And even though only 31 percent of households in Chile are headed by men, 62 percent of the accounts in that program are women’s. So that all of a sudden said, oh, gee, there’s something about housing and women and the traction here. And so now there’s a bill just to sort of create a protected class, almost, to protect those subsidies for women.
And there’s also—people think of Chile as sort of progressive in some ways. Yeah, not in other ways. So property rights, for example, men are the owners and directors of joint property, their property, and any property a wife brought into a marriage. So also the result of this data was to say, huh, we think we need to change that law. So there’s now a move to change that law because women could not get credit on their own because of that law, and these savings accounts became, in effect, not their property.
So, you know, each one of these things was very important from a policy perspective, but the other thing that we learned is that women pay back better and women don’t bounce checks. The difference in the numbers is huge. So the bank supervisor said, you know what? There’s less systemic risk in a banking system that has more participation by women. Well, that’s pretty big when you think about what’s going in the bank regulatory world around the globe. And so now we’re working with the bank regulation trying to take this message on the road. You know, it also led to new products and banks participating in things, but those are probably the biggest systemic changes that came out of this data. And it tells you how important stuff really can be.
VOGELSTEIN: Really important findings, and also an example of the transformative power of data to inspire progress. Daryl, you have completed financial diaries in countries around the world, in Mexico, in Kenya, in South Africa, elsewhere. And they provide a reveling look at the financial lives of those who live in poverty. Can you tell us a little bit about the methodology behind your search? Tell us what you’ve found. And we were talking earlier about your current work to look, in part, at the gender differences in financial diaries data sets for Kenya and Mexico and India. Tell us a little bit about what you’re finding there as well.
COLLINS: Well, let me start by just telling you a little bit about this financial diaries methodology. Financial diaries really started in the late ’90s with Stuart Rutherford in Bangladesh, when he realized—he was a practitioner, but also a big thinker. And he realized, you know, these one-off visits to low-income households, it doesn’t tell us nearly enough about people’s finances. I mean, at the heart of it, finance is a relationship between money and time.
And in order to really understand finance, you need to observe them together. So he conceived of this methodology called financial diaries, where he tracked a small number of households over the course of a year and tracked all their financial inflows and outflows. And out of that research came a number of other financial diaries. I did one in South Africa. Since coming back to the U.S. and joining BFA we’ve done financial diaries in Kenya, South Africa, India, Pakistan, Tanzania, Mozambique, Mexico. And we think we might look at China in the near future.
These studies all show a more qualitative view of people’s live. Quantitative in that we track all the fine-grain finances, all the money coming in through income, all the expenses, and all the little financial exchanges in between. But on fairly small samples, 300 households, 180 households. And it gives you more of a characterization of how people manage their money. What we’ve done recently with the Omidyar Network is we’ve looked at the financial diaries in Mexico, in Kenya, and in India, and particularly looked at that data through a gender lens, which we had never really done.
In Mexico, the sample was mostly households that were receiving conditional cash transfers. And in India, the households were mostly people who were involved in a microfinance institution, although we looked at the entire household. What we found—I mean, just to sort of come to sort of the nuggets of this work, which really is only being finished now, is when we think about the gender difference in how people manage money you can summarize them, and I came up with a little acronym just because—to help me remember, as well as help you remember. But the acronym is LEARN.
So first of all, men and women have very, very different livelihoods. Their livelihood patterns are totally different. We’ve always found that livelihood patterns really influence the type of financial portfolio that you use to manage your life. So women have livelihood patterns where they’re doing a lot of starting and stopping. The family may move, they may need to pick up and find some new livelihood to pursue. You have children, you might stop for a while, and you need to pick up some—a new job, or a new way of earning money after the child goes to school, or what have you. So women have these very disrupted livelihood cycles. Men do as well, but women distinctly more so. So the livelihood choices are very different.
The other aspect is the economic geography of women. It’s striking. We happen to have in our data—in every single cash flow we have a date, the cash flow, where it happened, either income, expense, financial transaction. And we have a code that tells you the geography in which it takes place. And we use that—thank god we had it—because we learned that, for example, in Mexico City women in the sample, all of their financial transactions—not all of them—90 percent of their financial transactions, either income or expenditures, happened within their neighborhoods. For men, it was only 40 percent. So women were very geographically constrained. They were in the household or they were in the market or they were in the neighborhood. And that’s really where they were. They were babysitting. They were selling used clothes. They were doing selling in the home. Men were out. They might have even been abroad. They might have been in another city, another country. So those geographies are very constrained.
The third one, A and R together, is really interesting. It’s very complex. What I use that for is kind of responsibilities or the arrangement of responsibilities. So women—there’s a couple of pieces in this. Women tend to play defense in the household finances where men play offense. So men look to go get the big strategy, the new business. Women are trying to make all the liquidity happen, make sure that the whole household sort of stays on track. And likewise, the responsibility has different measures of sort of enforcement. Women are enforced by their in-laws, by their children, by their spouses to hold up their end of the bargain. With men, what our qualitative interviews show is that they just really have more internal reinforcements—either pride or shame—which sometimes work and sometimes don’t.
In other words, men are supposed to be paying for the children’s school fees, but if they don’t women need to pick up the slack. Men are supposed to be earning the bigger income for the household, but if they don’t women need to pay defense. Women do this in very different ways. They might just literally mange the household income. They may be responsible for hiding the money away or managing the day-to-day expenses, or they may be sort of the purchasing manager. They may do a lot of the expenditures outside the household, or they may be the CFO. If you’re someone who only has the ability to influence very household-related expenses, yet the man in your relationship is not holding up his end of the bargain, you get very, very—you can really find yourself at loose ends. So, for example, a woman whose husband has died, or is sick, of deals with alcoholism. That’s a situation where because she’s so constrained she really can’t go outside.
The last letter is N, which is networks. Men are really looking for ways to get ahead, for that next big move. Women are working sideways in their networks. So they work with other women in their neighborhood. They borrow back and forth. They get money or they get goods on credit from a local store, from another woman that they know. They sell to women that they know. Whereas men are working vertically, trying to get ahead, trying to latch themselves onto a relative or a friend who can bring them the next-best opportunity.
Those really reflect a number of different of vulnerabilities and opportunities for financial service providers to help women, in particular, be more connected. So reflecting back to some of our comments on financial inclusion, in some ways I worry that the sector will abandon financial inclusion say, hey, we did it. Great. Now, what are we going to do? Now let’s think about the next step. Whereas women really are, if you look at both the macro numbers and these micro numbers you say, wow, this is a point—this is a point of access. This actually is an issue of access. And we can’t call victory on financial inclusion quite yet, not with this segment in mind.
VOGELSTEIN: Well, I can say that we have all learned a lot from the data that you just shared. And I am sure there are a lot of questions. So I’d like to open up the discussion now. Please raise your placards, state your name and affiliation, and we’ll get to as many questions as we can. Yes, over here.
Q: Let’s see. Is this on? Good. My name is Ricki Tigert Helfer. And I’m vice chair of the Grameen Foundation.
And we have—it’s an interesting issue about—because we obviously finance economic development in four regions of the world, and are involved in the Middle East as well through a joint venture. You see a variety of tools that are effective for financial inclusion, depending upon, of course, the place and development that you’re dealing with. For example, in the India case that was given, we have—the Grameen Foundation has just been chosen to provide MOTECH, its mobile technology platform, for a nationwide health services in India. And there are services accounts associated with this.
And what we have found is it is necessary to allow women to make deposits into not only accounts in their names, but accounts that may be in the name of their husband or their son, because they may be shy initially about establishing account, but have access to funds that are needed for the family. So it can be that that’s a first step toward the broader enablement of women to have their own access accounts and to exercise their own access accounts. So I wonder if you can give me other examples where one has to perhaps step back once in order to step forward two or three times in order to achieve the development goals that we all have.
COLLINS: Well, I mean, I think that what you’re recognizing is what is the reality on the ground. And I think we can’t underestimate the importance of the first step to providing greater financial access to women is signaling, signaling that in whatever culture/country that they are welcome. So sort of a contrary example, maybe, that I can offer that really struck me—Rosa Wang from Opportunity International told a story at another gender roundtable hosted by Women’s World Banking. She mentioned that in one of their branches, in Malawi, they had a huge run from women on their bank accounts. Suddenly one day women were streaming out the—I mean, a line was forming out the door and sort of around the bank itself.
I guess that what had happened was that my word of mouth—oftentimes in East African cultures the family of the husband lays claim to all the assets of the household once the husband dies, including the wife’s bank account. But opportunity had, the day before, defended a woman when the family came in and tried to take the money out of the bank account. They had said, no, this accounts belongs to that person—that person right there. It happened to be a woman. And all the women had heard about this. So the policy was there. The law was there. But you need an institution that will actually inforce it and, again, send—take advantage of those important signaling aspects. And I think that maybe part of what you’re talking about is signaling within the culture, you know, this big wide door that says: We’re going to recognize what’s the most important to you.
Another issue—and again, this is slightly contrary—privacy, because women are playing backstop, because they’re—it’s like the lender of last resort. They have to make sure that they’ve got little bits of money hidden around the house, or in their financial instruments, just in case all else fails. One of the respondents in our financial diaries in Kenya, a very poor woman, happened to realize that her M-Shwari account wasn’t visible to her children, even though her M-PESA account might have been if she asked them to do transactions. Now, M-PESA is a phone-to-phone remittance service. It’s a mobile money service. M-Shwari has the added benefit of possibly being able to borrow on the basis of your savings. She didn’t care about the borrowing, she cared about the privacy. So she managed to save about $200 in a year on M-Shwari, but the whole thing was because she figured out that privacy element. So we can’t forget, again and again, signaling that women are welcoming and recognizing what’s important to them. And also this issue of privacy, I think, will come up again and again and again, because women happen to play that particular role.
KATZMAN: And you know, it’s interesting, actually one of the elements of the Indian financial inclusion plan is to make sure that banks have a certain representation amongst their employees of women, because that’s also a part of the signaling and a part of the demonstration where they are more likely, and it’s clear that this is the case, to say to a woman: No, you do want your own account, because of these very many issues. And I think—you know, obviously Grameen has had huge success in so many ways. But I think there is this—there’s a very fine balance between recognizing what’s happening culturally and recognizing that you’re actually trying to make some changes, little nudges in other directions, that you can help through the establishment of some of these programs.
VOGELSTEIN: Very interesting insight into how to structure and implements policies in a way that really takes into account the realities of these norms. Why don’t we come over here, please?
Q: Thank you. I’m Karl Hofmann from Population Services International.
Very much enjoyed the story from Colombia and the banks with the work in demand creation among a particular audience. And I wonder if you can—and most of the conversation has been about banks. Can you compare and contrast the role of insurance companies and banks vis-à-vis this audience?
KATZMAN: I’ll take a stab at it. So you know, I think insurance companies have been later to the party. And there was a—you know, going back many, many years—and Daryl, you probably have other perspectives on this—but there was a view that, you know, poor people just didn’t know that they needed insurance. And even if they did, then it was really about, like, just kind of the insurance that would cover funeral expenses when someone died. And again, you know, I think that as time has gone on everybody, or lots of people, have recognized, oh, gee, maybe that’s not true. And yes, if you have a limited amount of income, you have to prioritize the kinds of insurance that you can divert some of your consumption to pay for.
And because that’s the case, there were an awful lot of insurance companies who really did not feel, and still don’t feel, that they can make money selling, in effect, micro insurance. And it’s a valid fear. The fixed costs associated with lots of kind of insurance eat up whatever can be paid very quickly. But I think where we are right now is the understanding of a lot of insurance companies that actually they can create a continuum of product, the technology can help them create bottom-of-the-pyramid-type products with lower fixed costs, and then they can actually make money in these different segments.
But I don’t—I think that’s still a work in process. We’ve done a bunch of work in our grant-making arm on micro insurance. And you know, there’s a lot more—it’s more focused on, let’s say, disaster recovery or resilience, which makes total sense. There are a couple of examples of insurance companies that have had just a devil of a time. And now there are emerging cases of insurance companies who are actually beginning to make money and make this a business proposition. And they’re beginning—you know, the whole context of the financial supermarket, recognizing that however they bring the customer, then they begin to have the opportunity to cross-sell.
COLLINS: So your question—I mean, let me take it at a broader level. I mean, we are talking a lot about banks. Financial inclusion in many ways—I mean, soon after we started talking about MFIs we started talking about banks. And BFA has had a lot of experience with larger banks, having gone through a number of different projects working with them. I think that where we’ve come to is that we need all sorts of players on the table, at the table. So banks are not going to crack this alone. MNOs are not going to crack this alone. And banks and MNOs have diametrically opposed business models. MNOs, in order to make money, they really want transaction revenues. So M-PESA, you know, is based on an MNO model. It’s been incredibly successful in one use case.
Has it really made a difference to people’s lives? That’s part of what the financial inclusion sector is sort of scratching its head about. At the same time, banks—I mean, Julie’s already mentioned this point about, you know, 50 percent of accounts in a particular segment being—having no balances. I mean, in India, where there was a government policy to push basic bank accounts, the banks that you see there are more like 90 percent that are inactive. So we know that banks have a lot of resources that they could put to the table, but they don’t have a lot of know-how. And banks are very political places.
And oftentimes, they have no idea what their profitability is, with the exception of Latin America. I mean, that’s one—man, geez, they really know their business case. Banks in Colombia, banks in Peru, they know exactly where those nickels and dimes are going. And it’s a huge benefit. I think that’s one of the reasons why the banks in Peru have gotten such traction. And they know that they need to cut costs, so they’ve used agents more expensive. And because they’ve used agents more extensively, I think that people are changing some of their financial behaviors. But in most places in the world, you don’t have banks who are so introspective and know that much about how they’re making money.
But we need to welcome all sorts of other players to the table. We need to welcome aggregators, for example, institutions that are mostly technology companies that might stand between banks and MNOs and do—sort of provide, like, a private switch. We need to welcome other small technology companies that might have solutions that sort of layer onto an MNO service or a bank service, for that matter. We need to welcome agribusinesses, for example, maybe as a distribution piece. And increasingly, I think as we go forward we’re going to see a lot more institutions needing to partner, because of both know-how and the need to drive down costs. And driving down costs, frankly, is really interesting. It helps us think much harder about how to solve the problem, as someone who studies low-income behavior.
With respect to insurance, I mean, it’s a tough nut to crack because of the fundamental proposition that if you’re low-income, the proposition that a company—that a large, formal, financial company says to you, here, give me a certain amount every month. And if it all goes wrong, I will pay you out X. That proposition is really tough. Like, what do you mean you’re going to pay me out? How do I know? How do I test this? It’s a very untestable proposition. And then, therefore, that is difficult. And the fact that it’s a formal institution where, I think, especially in the lower-end market people are used to informal mechanisms where you know the person, you know the family, you know how far the family goes back, you can assess the risk of interacting with that person. But interacting with a big, formal, financial company? That’s harder.
I think a number of business models in the micro insurance space are using this freemium model, where you are tacking insurance onto another service. And I think it’s starting to get traction, but what makes me anxious is that I think that very few people know that they actually have that coverage.
KATZMAN: Absolutely right.
COLLINS: Right? Yeah.
KATZMAN: And the MFIs have done that for a long time. I think it’s hurt the insurance business.
COLLINS: Yeah, yeah. Right.
KATZMAN: Because it’s often that you have to pay for something and you don’t actually know what the benefit is and—yeah.
COLLINS: It’s very hard to get it right. Very hard to get it right, yeah.
KATZMAN: I just would add one other thing to the—you know, we had this conversation when we spoke, this question of scalability, which you started with. And people say, well, what are scalable models that work? And you know, the example I used in Colombia, it’s 2.7 million people today. And that’s big. So, OK. But is it going to remain profitable? And how profitable is it? And so, will the banks stay with it? You know, it’s still early days. And I think the concept of you still have to experiment, right? And what made me think of it is what you just said about the—people not being so comfortable interacting with institutions. And banks remain institutions.
So we’re actually looking at some ideas and interactions that will bring the blockchain into play. So what if you went—for those who don’t know, the blockchain is the virtual ledger behind Bitcoin or one of—that is an example of a blockchain technology. So what if you delivered CCTs through the blockchain, and then there’s more venue money going into building sort of the app infrastructure associated with the blockchain than probably any other part of financial services, including other fintech today. So if people are really—a portion of the population that you’re trying to reach is really suspect of the banks, create an alternative that doesn’t actually require interacting with banks.
I think, you know, one of the other big themes around the globe, but certainly in Latin America today, is transparency and corruption. And there’s a real link in these conversations. So some of the things that we’re doing relate to those ideas, or building micro ecosystems. So for example, in our transparency fund—and Fernando de Olloqui from the IDB is very involved in this—in Mexico, we’re thinking with the Mexican government of doing something that involves students who receive payments from the government for part of their studies. But they also have to make payments to the government.
So take that ecosystem and engage with that ecosystem around electronic payments, and then incorporate them. And of course, that means they’re young. They’re going to university. The circle of influence starts to build. And you start to engage on transparency as well as inclusion. You know, there’s lots of different flags and opportunities and attempts being made, because I don’t think we actually know everything that works and is going to find all of the answers.
VOGELSTEIN: Clearly important to expand the circle of institutions, but a lot of unanswered questions on how to do it, and on insurance in particular. Why don’t we come over here?
Q: Great. Thank you. Is it on?
Q: Mona Yacoubian from the Middle East Bureau at USAID.
I’m wondering if there are particular insights on this work on financial inclusion for displaced populations. In particular, not only internally displaced but refugees and, in our part of the world, who are largely now living within host communities.
VOGELSTEIN: Displaced populations.
KATZMAN: I’m going to let Daryl go first. (Laughter.)
COLLINS: Well, I—(laughter)—I have one data point, which I just found out about, actually. It turns out that our team in Kenya did some really lovely mapping, sort of mapping these micro systems. And one of the places they went to was a refugee camp in northern Kenya. And it turns out that this particular camp has the most M-PESA transactions outside of Nairobi. So Safaricom, who runs M-PESA, put a whole tower up there. Obviously, like when you start to think about it, well, duh, because they need to receive money back and forth. And so we were just sort of mapping where does some of that money come to, where are the nodes, and how do the small businesses operate, and how do they get service, et cetera.
And I actually think that as—you know, having sort of undergone that experience and thought about—at the same time, doing a lot of thinking about unique IDs, for example, is that actually—could we actually turn that into an opportunity? So could we actually say, well, all right, if displaced persons are actually a node of lots of different P2P, person-to-person, transactions, then can we not take that opportunity and facilitate or piggyback on some of those transactions and somehow create maybe a better unique ID situation, which then unlocks all sorts of other potential. So there was the one data point and the one flash in the pan. But did occur to me that that’s actually an opportunity, simply because it is a node for so much P2P activity.
KATZMAN: Yeah, you know, thankfully I’m blessed with working in a region that doesn’t have many displaced people. And when I think about this, I sort of think about unintended consequences of things. You know, like the whole bank regulatory anti-money laundering, terrorism thing, and what happened in Somalia. So we don’t have experiences, I think, that are relevant. But I think that the overall concept of now you’ve got people who are almost completely reliant on funding from outside because the ability of the U.N. to finance what’s necessary has been so heavily compromised, given the size of the populations now, that how you think about supporting a population that really has almost no other means of support, other than what grows internally in the system.
And that, to me, is the other side of this, which is in a funny way you could say, if you—northern Kenya’s not a good example of this, because it’s a population that’s ebbed and flowed and continued to grow for a long time. But when you had the beginning of the Syrian crisis, you almost have the opportunity to create a system from the start. And I know that MasterCard has been involved in trying to put more on the card. And so in a funny way it might be—as you say, it’s an opportunity. That opportunity to create an ecosystem from the start, which also addresses one of the key issues in refugee camps of security, could be an interesting way to think about that too.
VOGELSTEIN: So we’re going to do a quick round robin to try and get to the remaining questions in the room. I will ask each of you to just go ahead and state your question, and then we’ll give our speakers an opportunity to respond in the remaining time. So why don’t we start here?
Q: Sure. Thank you. I guess before I jump in, I just wanted to say one other data point, you might want to look at the State Department. They actually did a review in Haiti, so internally displaced after the earthquake. They realized from a gender-security perspective—there, most of the men are farmers, the women are the ones that take the crops into the main villages to actually sell. And there was a high spike after the earthquake of robberies, rapes, and whatnot. So from a mobile money perspective, it created a huge opportunity. So the State Department did an internal review of U.S. development assistance under that context. So you might want to—I forget where that went, but I do remember that happening just after the earthquake.
Aron Betru with Financing for Development.
My question actually—that issue around the savings piece is a little interesting, because I think there’s two—there’s a range of opportunities there. And I think a couple of the examples we’ve been hearing about is more about that safety net for emergencies. But then I think if we really talk about a true range, there is the other end of that which is income generation, wealth creation side of it. And I just haven’t seen a lot of opportunities there. And I’d love to hear what your thoughts are on the income-generation side of it. And I don’t know if it’s too early in some of these countries, but nonetheless, what is the role then outside of the country, whether it be donors or guarantors, to actually switch that on? Because I think that might be a good way to actually increase the incentives and grow the market there.
VOGELSTEIN: Thank you. Steve.
Q: Hi. Steve Cashin, Pan African Capital.
You mentioned—and we invest in banks across Africa, as well as financial institutions of a number of different kinds. You mentioned the issue of banks and the fact that cash flows right through the bank, but the products aren’t built. You also mentioned that maybe we ought to look at a broader array of products. But I decidedly didn’t hear mutual funds which, in Ghana, we’ve started the EPACK fund, which had a huge impact, and it was built on market women. The same thing, we see a huge evolution in the professional management of pensions. And by pensions, I’m broadening—I broaden the definition to include social security networks in countries and other long-term provisions of capital that can be the drivers of policy change that affect the most vulnerable in society.
And we see a lot of activity in that space that is impacting not only women, but vulnerable populations. And we see it as an opportunity for the policy changes to begin to take root, on the inside as opposed to on the outside. You know, Julie, you started with the Financial Inclusion 2020. We kind of—we just don’t feel it’s serious. We feel—and we’re bankers. We weren’t included in the discussion, nor were our clients included in the discussion. They were included in the discussion. And I think that this has to be driven from the ground up. And there are an interesting convergence of financial long-term products on the ground that may be able to play a role. And then we use M-PESA as the delivery mechanism that it is, not as a savings mechanism.
VOGELSTEIN: Mmm hmm. Thank you for that.
And quickly we’ll turn to this side of the room. Patricia.
Q: Patricia Wu, C&M International.
Thank you for your comment about sex-disaggregated data. We’ve been doing some work in the space of women’s economic empowerment and health, and are bumping up against this as well. And I’m just curious your thoughts on what are the obstacles to getting more sex-disaggregated data? And how can we be working more closely with governments and other stakeholders so we get more of that data out there?
VOGELSTEIN: And we might think about a whole roundtable session just on that. But we’ll get to that. And thank you, David.
Q: I don’t think I can turn this—is it on?
VOGELSTEIN: It’s on.
Q: David Apgar. I manage a small business fund at the Inter-American Investment Corporation. But I spent even more time working on the problem of micro- and small-enterprise access to advice, which can be an even bigger problem than access to finance.
My question for either or both of you is just could you kindly summarize what’s known now about gender-sensitive reasons why micro and small enterprises stop growing too soon?
VOGELSTEIN: So we have a few questions on the docket here. Julie, Daryl?
KATZMAN: I’ll go from the back forward, maybe? OK. So there are a lot of theories about why women’s businesses don’t grow as quickly and stop growing. But there’s now actually some interesting data as well. And one is, that ties directly to a lot of what’s been said in this round of questions and before, which is that when women start businesses they tend to have much more leverage when they start them than equity, because they have less savings and they have less of a network of people who will invest in their businesses and a bunch of other reasons relative to access. They are the backstop, so they want to keep some money over here, they don’t invest it in the business.
So actually, they are being rational when they are conservative, because they’re heavily leveraged. And then, they create patterns of behavior, like anybody does. So they pay down the leverage, and they still don’t get more aggressive about the growth of the business. And they’re still playing these roles—these societal roles. So they have this other reason to constantly be worrying about they’re the backstop, so they got to be careful with the business. And the other part is, that they tend to start businesses that are less profitable than men, because they tend to start service-oriented businesses—like the hair salon and the bakery—associated with level of education and the type of choices they make during education. So there’s—you know, there’s a lot of those reasons. And they’re very systemic. So you have to go after those systemic causes.
And I’ll just quickly, because as Rachel said a whole other dialogue about this disaggregated data, you know, it is really interesting that I think until you make the business case for what knowing the data can unlock with government, they don’t care. So that’s why this Chile stuff is really important to us, because we’ve enlisted the supervisor and are doing a variety of things to say, OK, look, you can see how you can make policy changes that will drive economic growth in your country. And if that’s the case, then I get much more excited as a minister of finance in making the investments that have to be made.
And that’s—you know, to a large extent, I think that that is the biggest obstacle. People who have to do the disaggregating do not want to do it. And they see the cost and they see the pain in the ass. And they tell you why it cannot be done over and over and over again. And you know, like, really, what minister wants to take that on? So you know, I think it’s really—per sector, one really has to make the case for why that data is really going to be a game changer, and fit the political agenda of whoever’s in government at that moment.
COLLINS: OK, so—OK, great. Let me pick up and circle around a little bit more on the small enterprise and gender sensitive. And I think that Julie’s points about gender sensitivity are entirely appropriate. But we’re also learning so much more about what holds back these small enterprises and why they don’t expand. And we have a new project with the MasterCard Foundation that really looks to small businesses as, again, nodes of transactions. And leveraging how to help small businesses enable more digital and more digitalized transactions to help themselves.
The answer is not because digital is less expensive. The answer is greater transparency. You can see if your employees are stealing from you or, even if you don’t want to confront those employees because a lot of times they’re your relatives, you can at least know that that’s the can of worms you’ve dealt and you can make that cost-benefit analysis. So if you have a business that is more digitized, it helps you just to see the greater picture, and it helps you to leave it alone. You can see a lot of times a shopkeeper cannot open up a new branch of their retail operation because they don’t have anyone that they trust to leave behind in the original branch. If you can digitize and somehow see everything that’s happening in that business in a given day you can then say, oh, well, this salesperson didn’t sell very much, or this person was messing up this way.
And you can control your business. So I think that those are just some small business things that have to do with the benefit of digitization that has nothing to do with the cost of cash, which we’re trying to increasingly solve so that you do have a lot of these small merchant payments, which make up the bulk of the payments and the transactions within the low-income households. We can bring them onto a digital platform. And we can bring them—and hopefully then it will sort of filter up and filter down, and create a more digitized economy, which we know does have benefits to GDP.
The other thing that I just wanted to mention, Steve, your point about long-term savings. Yes, in my—given the financial diaries data that we work with, the duration of most savings is about two years. And that savings will be when somebody can leverage sort of a large enough lump sum to get into some sort of long-term savings vehicle, an education savings plan, or what have you. But most of the time, the duration of the financial instruments that the poor have available to them, you count in number of months. Now, one of the key savings vehicles that the poor have, and particular poor women, are savings groups. Those savings groups, by the definition, usually only last, at most, 12 months.
So one of the key ways to getting to longer-duration savings is, hopefully, to leverage some of that one-year savings and turn it into two-year savings, and leverage that two-year savings and turn it into longer-term savings. We certainly know that the poor have a demand for longer-term savings. We know that from the Grameen pension fund which was incredibly successful. It’s just a matter of accessing them, because it’s very hard to put that money aside. And I do think that savings groups, again especially in the gender conversation, ends up being an incredibly rich place from which to leverage all sorts of opportunities, but including long-term savings.
KATZMAN: Let me just one other thing—
VOGELSTEIN: Closing remark.
KATZMAN: Yeah, what Aron said. So this question of wealth management. So I’m on the board of the Global Banking Alliance for Women. And we’ve had a conversation about changing the name of the organization to the Global Financial Alliance for Women. The Global Banking Alliance for Women is very focused on—it’s a peer-to-peer organization focused on getting banks to invest in and build out businesses for largely small and medium sized, not micro, women’s businesses, and understand that the women’s market is a big market with a big profit opportunity.
But increasingly, you know, those women represent, at the micro, small, and medium level other financial business opportunities. And there are very few places where that opportunity is being taken advantage of in a tailored way to attract women as customers, and to succeed in serving them and then retaining them. And there are very few places and very few firms that are very focused on sort of what I’ll call micro wealth management. In India there are a couple of examples, and it’s really probably the only place where anybody really is focused on that. And I think you’re right, there are huge opportunities there.
But similar to what Daryl just said, you know, it’s not that easy to access. And the concerns that people have about being abused by institutions takes a long time, and the right kind of market presence and building reputation in a marketplace, to really achieve that.
VOGELSTEIN: Well, it is clear from the important questions we’ve heard today that we’re in a critical moment in the movement to promote financial inclusion. And today’s discussion really illuminates the path forward. So please join me in thanking our speakers for their insights today. (Applause.) Thank you.
This is an uncorrected transcript.