Going for broke — why investing in the unbanked shows a good return

By Gabriella Jóźwiak 07 November 2016

Eileen Hoffman, director of economic growth and trade at Chemonics. Photo by: Chemonics

The World Bank has a goal to see all adults not currently part of the formal financial system accessing a transaction account by 2020. This Universal Finance Access pledge accounts for the 2 billion unbanked people living in developing economies. It’s a bold aim, but one Eileen Hoffman, director of the economic growth and trade practice at private international development company Chemonics, is positive can be achieved.

Devex caught up with Hoffman to hear why improving financial inclusion is such a fast-paced area of development, and on what development practitioners need to focus when working on projects to deliver economic empowerment. The solutions involve new technologies, as well as old, and specific focus on traditionally disadvantaged groups such as youth and women.

Here are some highlights from our conversation:

You have 16 years of experience designing and implementing programs focused on private sector competitiveness, entrepreneurship, workforce development, and local economic development. What have been the most significant changes you’ve seen along the way?

So much has changed in this time. The pace of change is also getting faster with the advent of new technologies. For example, today, the presence of a robust microfinance industry is a given in many counties. That industry has matured and, in many cases, graduated from donor assistance.

There have also been significant changes in other types of financial services, such as savings groups. We’ve seen savings groups explode all over Africa. In recent years we’ve also seen that this explosion, coupled with the explosion of mobile technologies, means that savings groups can now have actual savings accounts instead of cash in lock boxes, and they can use mobile technology to manage those accounts.

Financial services have changed dramatically. New technologies are perhaps the biggest contributor to this change. Where development professionals used to work primarily with  banks, microfinance institutes and credit unions, we now also work with mobile network operators and software development companies.

Today, someone who was previously considered unbankable because he had no link to formal financial services, can qualify for a loan because his history of topping up his prepaid mobile phone card can be used a proxy for his creditworthiness.

Today we also have broad consensus that one-size-fits-all development doesn’t work — we need to tailor our approaches to each specific context. We need to always ask ourselves at the project level, and then at the individual intervention level, what is going to be the impact of this activity on women, on men, on youth and on marginalized populations? It’s really important to make that analysis every time, because the impacts will be different.

There is no specific Sustainable Development Goal on improving economic or financial inclusion. Was this an oversight?

No. On the contrary, inclusion is woven in throughout the SDGs. They are paving the way for even greater emphasis on financial inclusion. In a number of SDG goals you see the words “inclusive” and “for all.”

Women are disproportionately disadvantaged when it comes to economic empowerment. More than half of the world’s unbanked are female. What are development professionals doing about this, and what more needs to be done?

The development industry has done a good job to date of understanding the nuanced challenges to increasing women’s economic empowerment. One positive trend I see is the inclusion of men in women’s economic empowerment programming.

Women’s economic empowerment is a double-edged sword. When we empower women they start bringing home an income. When they start gaining stature in the community, because they are operating a business or employing people, in certain contexts those women become more vulnerable to gender-based violence. It throws off the power balance in the home and that can be threatening to the men in the household. We need to take that into consideration as we’re designing and implementing our programs, for example, by working with whole families.

We also need to focus on the enabling environment, particularly policies, regulation and even trade. We can create opportunities on the ground, but if the laws and regulations [of a country] are not in place to support that economic activity, it may fail. One example we see often in financial services is the issue of collateral requirements for loans. For example, in Afghanistan only land can be used as collateral. Only men own land. So legally women cannot present collateral. This is not necessarily an issue that is the choice of a bank — it’s a policy issue. When doing policy reform, it’s important we analyze the potential impact of policy or regulations on both men and women.

In addition, it’s important that we look at all of the actors in the market and make sure they can effectively implement and regulate those policies. For example, if a law is put in place, judges need to be trained in that law and know how to adjudicate cases effectively.

How can the development sector help this happen?

To be sustainable, these changes need to be driven locally by the users and providers of financial services. We can facilitate public private dialogues and bring in expertise to help the government make the necessary adjustments to the reforms. But the impetus for the change has to be locally driven.

Why is focusing on young people’s economic empowerment important? Are unique strategies needed for youth-inclusive programming?

Young people are incredibly important. Half the population is under the age of 30 around the world. They are both tomorrow’s and today’s workforce. It’s incredibly important that we help youth build their skills, knowledge, and increase their ability to become economic actors in their communities.

[The development sector] does a lot with youth in terms of equipping them with technical skills. Workforce development programs around the world are focusing on this. Alongside that, it’s necessary to develop their soft skills — the skills that enable them to get and maintain a job, such as having the right expectations about career development. Mentoring programs, internships and apprenticeships are really important.

All of this is really contingent upon the involvement of the private sector. It’s also critical when working with youth to involve their families. Youth need the understanding and support of their families to enable them to go out and get training and start a microenterprise or seek formal employment.

Is the private sector on board with this approach?

We’ve seen a lot of willingness from the private sector to work with youth. They recognize this is their workforce so they are a good partner. In Jordan, for example, we work with [the U.S. Agency for International Development] in the tourism sector. Companies there have contributed significantly to youth training programs, because companies are looking for their next employees.

How are people living in rural and hard-to-reach areas accessing financial products and improving their economic capabilities?

One thing that’s made a huge difference in reaching people in rural and hard to reach areas is mobile technology. Technology is often used to provide information. Particularly in the agriculture sector, we see farmers receiving pricing information via SMS, information about weather and extension services, such as guidance on planting and harvesting. That’s really empowering people to improve their business and earn more money. We’re also seeing new technologies being used to provide services, such as enabling people to have mobile wallets so they can make virtual payments.

In Afghanistan, we’ve been working to help financial service providers develop and roll out Islamic finance products. Outside of [the capital city] Kabul, in the rural and hard-to-reach areas, there’s a large market for Islamic finance products. We have introduced electronic kiosks, which are physical kiosks, and installed point-of-sale-machines in over 1,800 merchants. Through a mobile phone, kiosk, or a point-of-sale-machines at a small shop, people can pay municipal taxes, electricity bills, top up their phone cards, or receive their salaries. These are ways of getting financial services to areas where building a brick-and-mortar bank is not viable.

How can development professionals working on financial inclusion overcome cultural resistance, or fear of change among target communities?  

Adoption of new financial services and technologies is a challenge. We try to work with what’s already there and understand the context. For example, in Afghanistan we’ve worked with the industry to do some creative things to build trust. This included working with all mobile network operators together to promote the use of mobile money, rather than promoting one brand, through radio and television adverts. As of September 2016, we had nearly 56,000 users of electronic financial services.

Finally, what advice would you give to development professionals focused on improving economic empowerment?

It’s important to take into consideration the informal. The industry is starting to look beyond what we have considered traditional financial services, and we are looking at how the economic activity people are doing can be preparation for accessing formal financial services. For example, in much of the world, informal savings and lending groups are people’s first step in gaining financial literacy. Such participation is also oftentimes a gateway to formal financial services.

Over three weeks, Devex and its partner Chemonics will explore how the development sector can work together to promote inclusive local, and sustainable approaches to development. Global to Local will reimagine how to work together to address a myriad of interrelated challenges, pivoting toward more connected and crosscutting approaches to solving global problems. Join the conversation, tagging @Devex and #Global2Local.

About the author

Gabriella jozwiak profile
Gabriella Jóźwiak@GabriellaJ

Gabriella Jóźwiak is an award-winning journalist based in London. Her work on issues and policies affecting children and young people in developing countries and the U.K. has been published in national newspapers and magazines. Having worked in-house for domestic and international development charities, Jóźwiak has a keen interest in organizational development, and has worked as a journalist in several countries across West Africa and South America.


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