Viewing all posts with tag: Customers  

You Say M-Shwari, I Say Payday Loan

Over at CGAP, Julie Zollman has a terrific post on M-Shwari, the Kenyan borrowing and saving platform built on M-Pesa, examining the underlying customer needs that have led to M-Shwari’s success. Here’s a key passage:

The appeal [of M-Shwari] was the possibility of being able to borrow on demand, in real time, to stretch families’ ability to make ends meet in the short term.  M-Shwari offered liquidity bigger than credit from local shops; faster, more private, and more reliable than friends and family, and cheaper than moneylenders. Here was a product that … solved a very real financial need while also getting delivery right: being accessible, having simple rules…
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FAI's Jonathan Morduch on "The Hidden Tragedy of the Poor"

Recently Upsides sat down with FAI’s Jonathan Morduch to discuss his views on the current state of microfinance and his current project – US Financial Diaries.  Morduch highlights that whether in the developing world or the US, the poor face many of the same financial struggles, which is why understanding money management strategies at the household level a crucial step to providing more effective financial services to the poor . . . 

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High Touch or Low Touch: How to Reach New Microinsurance Customers?

How can we extend financial products and services, like microinsurance, to low-income consumers at scale? In theory, “low touch” sales and services can reach large numbers of people at low cost.  But so far, attempts to enroll new customers without active sales efforts have largely failed. As a result, “high touch” sales and distribution channels are seen as necessary to convince low-income consumers to purchase financial products, especially unfamiliar and complex ones such as microinsurance.  But these high touch channels may incur costs that the small premium revenues struggle to cover. 

Is it too soon to dismiss low touch methods? Can a balance be struck that provides the information, support, and “touch” level that encourages clients to buy, while keeping distribution costs in check?

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Harvard’s New Entrepreneurial Finance Lab

There’s a new weapon in the fight to expand financial access.

he Entrepreneurial Finance Lab, founded by faculty and students from the Harvard Kennedy School and Harvard Business School, is pioneering new personality-assessment based tools to expand credit access.  Survey-based measures of personality characteristics – such as ethics, character, intelligence, attitudes and beliefs – combined with measures of business skills turn out to be powerful predictors of loan repayment in real-world settings.  The Entrepreneurial Finance Lab creates alternative credit scores based on these characteristics to expand credit access in partnership with banks and microfinance institutions from around the world.

The approach originates from research in both psychology and business administration . . . 

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A Word of Warning on Postal Banking

Not long ago on this blog, Julie Siwicki explored Senator Elizabeth Warren's controversial idea that post offices begin offering checking and savings accounts, small loans, and money transfers. Would underserved consumers would actually benefit from the plan? Would expanded financial services actually help the struggling post office turn a profit? With the proposal now before Congress, FAI's managing Director Tim Ogden spoke with Next City, a non-profit that covers leaders, policies and innovations in metropolitan regions, about what it would take for postal banking to  meet the needs of the unbanked . . . 

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In Mexico, Naïve Consumers Get Bad Loan Information

A recently released World Bank Policy Research Working Paper presents results of an audit study of Mexican banks, investigating whether bank employees hide the lowest cost options from potential customers in order to turn a higher profit.

Financial products can vary widely in cost while providing more or less the same services.  The dispersion in prices for products that offer essentially the same benefits – checking accounts, savings accounts, loans, and index funds – is thought to at least partly reflect a lack of information on the part of consumers.  Savvy and informed consumers would gravitate to the lowest cost option, and competition would then drive prices down to the same level for equivalent products.

A key potential source of information on financial product attributes and prices is bank employees.  Bank employees presumably know their products, but may strategically choose not to divulge information about lower cost options . . . 

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Bringing Financial Services to Illiterate Populations

Recent work from CGAP and Continuum Innovation in Pakistan calls extreme illiteracy a “hidden hurdle” to financial inclusion. When people are unable to read or understand digital transactions they are less likely to trust digital products, constraining a viable avenue for access to financial products. In many cases illiterate people have to rely on an agent to complete their transaction and many remain wary of such services. The scale of this challenge is immense: UNESCO estimates the worldwide illiterate population at almost 800 million.

Many researchers have proposed ways to make financial services, and digital financial services in particular, more accessible to illiterate people. One idea comes from Woldmariam et al., who propose a new user interface that allows mobile money users in Ethiopia to identify currency notes on screen . . . 

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When Financial Awareness doesn’t lead to Financial Access

What does financial access look like? I like to think of it as a non-prescriptive goal in two parts. First, high-quality, affordable financial services are available. Second, people are aware of the services available to them. When these conditions are met, people are free to choose whether or not to use the services, and “access” is created.

A recent working paper challenged me to probe this definition of access further. Using data from the Mexican Family Life Survey, the authors explore a) whether households are aware of a specific financial product, and b) given that awareness, if they use the product. They found, among other results, that while the availability of one type of formal loan in a given locality did predict households’ knowledge of that credit, it did not lead them to use it . . . 

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How to Increase Formal Savings for the Papad-Makers of Dharavi Slum

This post by Mudita Tiwari and Deepti KC.

In Dharavi, Mumbai, the largest urban slum in Asia, groups of women make papad, crispy lentil dough wafers, for Lijjat Papad Company, one of the world’s largest papad retailers.  Lijjat requires any woman who works for the enterprise to first open a savings account, and to encourage savings, the company deposits a small proportion of the women’s earnings (2 rupees of every 32 rupees earned) directly into the savings accounts, adding a bonus during the Diwali festival . . . 

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Walmart is Coming for Your Banks

In April Walmart announced the launch of a new money transfer service. I did a double take on the service's low price: $9.50 to send up to $900 from one Walmart store to another – that’s as much as $66.50 cheaper than the price of competing services at Western Union and Money Gram.

This is just the latest example of Walmart's foray into the financial services industry. In 2012 the retailer launched the Bluebird prepaid card with American Express. The product has no monthly fees or minimum balance requirements, making it more affordable than the norm. The cost of cashing a check at Walmart's Money Center is a transparent flat rate, often cheaper than independent financial services centers that take a large percentage of a check's total. The big box store also offers car insurance “one stop shops” at a growing number of locations, and it houses bank branches with “convenient hours, free financial education and unusually forgiving account features”. All in all, Walmart seems to consistently deliver more budget-friendly financial tools than its competitors. And not only do its financial products come at a lower price for consumers; they are all offered in the same place, easing the burden on people who are squeezed for time and transportation . . . 

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Redesigning the Corner Bank…For Rich and Poor

In January, the Wall Street Journal reported that banks are to closing brick-and-mortar branches “at a record rate,” as new technologies and financial pressures drive them to transition many of their services to digital equivalents or ATMs. But against this broader backdrop of bank closings, the market is both fragmenting and polarizing, as a handful of banks redesign their branches for specific demographic groups.

For the tech-savvy, middle-to-high income millennial who doesn’t carry cash and wants banking to be quick and convenient, Capital One advertises its new network of “360 Cafés” as places where customers can discuss account options with staff while drinking an espresso. Umqua Bank in San Francisco has a concierge at its downtown location, described in the local press as “a cross between an Apple Store, a Starbucks and a W Hotel lobby.” And Wells Fargo is piloting “mini-branches” in up-and-coming urban neighborhoods like DC’s U Street where customers, attended by trouble-shooting tablet-carrying bank employees, use sophisticated versions of self-service machines that dispense cash and take deposits, but also issue debit cards and loan applications . . . 

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The Life of the "Microentrepreneur"

There has been plenty written on the failure of microcredit-funded enterprises to grow or achieve more than minimal profitability. If you’re curious why microenterprises don’t grow, I recommend reading a new piece that provides some insight into the life of a microentrepreneur. It’s from an unexpected source: a Fast Company magazine article about the emerging world of task-based “entrepreneurship” in the United States. Companies like Uber, TaskRabbit, Postmates, AirBnB and Amazon (via its Mechanical Turk service) allow people to earn income by doing odd-jobs, renting out a room or running errands. The rosy view that all these companies present is that they are providing an opportunity for people to earn money on their own terms and in the hours that they are not otherwise occupied. And each prominently features stories of individuals who are doing quite well, even quitting regular jobs and substantially profiting from using these tools (not unlike, it should be noted, the stories that emanate from microcredit).

But that is not the experience of the average user . . . 

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Should Your Post Office Be a Bank?

Last month brought a flurry of opinions on postal banking in response to a new proposal that the US Post Office offer financial services – including bill-pay, check cashing, even small loans – to the “financially underserved.” Reactions have ranged from enthusiastic to deeply skeptical. This post highlights two key questions that have been posed and synthesizes some of the answers offered up so far.

Would the underserved consumer actually benefit?

Some say yes. There’s evidence that the Postal Service’s financial products would be able to reach people who are “significantly poorer, older, less educated, and less likely to be employed” than those who bank at formal financial institutions according to CGAP, citing a 2013 Findex report which found that as much is true in other countries with postal banking . . . 

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Stop Saying That Customers Don't Know What They Want

Lately I've been noticing a lot of writing about innovation inanely citing Steve Jobs (“People don't know what they want until you show it to them”) and/or Henry Ford (“If I had asked people what they wanted, they would have said faster horses.”) quotations about customers not knowing what they want. An example last week, in an otherwise reasonable piece about how to measure economic progress, caused my frustration to boil over.

I think this perspective on innovation rears its head a lot when it comes to financial services for poor households which is concerning because it is 90% (at least) dead wrong.

Let’s start with the Ford quotation. First, it’s apocryphal . . . 

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The Price of (Dis)Trust

No consumer likes overdraft fees. Overdraft fees are often unexpected, expensive, and in some cases undeserved. What’s more, they can wreak financial havoc on households living on a low-income.

But the larger issue is not the fees themselves. It’s the lack of transparency surrounding them and the widespread consumer distrust that results.

Edelman is a PR firm that surveys people around the world to create an annual Trust Barometer (among other things), which gauges levels of trust in different institutions. In 2012 it found that only 41% of respondents in the U.S. trust banks – which, by the way, were at the bottom of the list right along with financial services. The year’s ratings on banks are second-worst only to 2011, when they hit a low of 25% . . . 

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Overdraft as a Product, not a Penalty?

The Taylors overdraft their checking account every two weeks, on purpose.

As described in a recent issue brief published by the U.S. Financial Diaries, the Taylor family’s income level varies significantly from month to month. Sometimes it’s not enough to cover all of their expenses. So, they opened an account at a bank with a simple overdraft fee structure: One $35 charge per overdraft, no daily fees, and an allowance of up to $500 at a time. Since the Taylors typically make only one large cash withdrawal per paycheck – the entire amount of pay – this bank would charge them at most one $35 overdraft fee each cycle, if they happen to need more cash than the amount of that week’s direct deposit.

The Taylors use overdrafts as another household might swipe a credit card or take out a payday loan. Since their credit history eliminates the card option and they are already tied up with a payday lender, over-drafting becomes another logical – and probably more convenient – place for them to turn to stay on top of their bills. It’s clear that the family responded to and relies on their new bank's transparent behavior. They saw its fee policy, understood how they could manage it, and became a customer . . . 

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New Paper on Impact of Savings Groups on Poor African Women

Self-funded groups are an increasingly common way of delivering microfinance services. In India, for example, self-help groups increased their membership dramatically in Andhra Pradesh after the microfinance crisis of 2009-2010. In Africa, several international NGOs are promoting village savings and loans associations (VSLAs) as member-driven, local institutions.

Can these groups “replace” traditional microfinance, in the sense that they do not need the intervention of loan officers or professional managers? An interesting paper contributes to answering this question . . . 

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From Responsible Finance to Suitable Finance: Financial Engineering for Low-Income Households

This post is written by Bindu Ananth and Amit Shah. Bindu Ananth is President of the IFMR Trust and Amit Shah is Head of  Business Intelligence at IFMR Rural Finance. They co-edited the recently published book “Financial Engineering for Low-Income Households.”

Five years ago when we set up the KGFS model of financial institutions in remote-rural India, we wanted to make a fundamental shift in the way financial services were offered to households. We wanted the organising principle to be suitability, i.e., how do we make sure that every single customer receives the portfolio of financial services that is most suitable given her needs and preferences? This is essentially what wealth managers are supposed to do for ultra-rich individuals but we wanted to do it for clients with a mean income of USD 1000 per year through staff with twelve years of formal education . . . 

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Reliability of Self-Reported Data - Diaries and Alternative Methodologies

In last week’s blog post, I suggested that self-reported data should be supplemented with objective sources of information from independent third-party entities. Sometimes, however, independent data sources simply aren’t available and researchers have no choice but to base their analysis on self-reported data. Under these circumstances, some data collection methodologies might be more useful than others in ensuring that self-reported data are reliable. In this post, I discuss several studies of the potential of the diaries methodology and alternative strategies to capture accurate self-reported data.

Klaus Deininger, Calogero Carletto, Sara Savastano and James Muwonge examine the effect of personal diaries on the quality of self-reported agricultural data in their study, “Can Diaries Help in Improving Agricultural Production Statistics? Evidence from Uganda.” In Uganda, a large part of crop output consists of continually harvested crops such as cassava and banana. Since these crops are harvested over long periods of time, farmers who are asked to report harvest data may have trouble recalling events that happened several months earlier . . . 

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What is the Impact of Muhammad Yunus?

Muhammad Yunus spoke to an overflowing crowd at NYU on April 15, an event jointly sponsored by the Wagner School of Public Service, Stern School of Business, and Financial Access Initiative.

Professor Yunus is known for fighting to improve the lives of millions of poor families around the world, the quest that was celebrated by the 2006 Nobel Peace Prize. These days there is a lot of talk about the impact of microcredit. But here was an opportunity to ask: what is the impact of Yunus? Given where we were, more specifically, how has Yunus changed the way we--economists, academics, policy makers and influencers--think about problems?

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