NOTE 7: ON FINANCIAL INCLUSION (FINAL)
In the two previous Notes, I
commented the pros and cons of “Mobile Banking” as the main effort to promote
Financial Inclusion, at least how it is sold nowadays. The issue is not whether
we will have to use or not the “Mobile Banking” for that purpose: “Mobile
Banking” is just another tool within a span of distant banking services such
as: ATMs, Mobile Branches, Electronics Purses, Prepaid Credit cards, Teller
stations in third parties facilities, walking branches, etc.,
Financial Inclusion is a more
complex issue that cannot be solved simply with one paying facility, because we
are working with people which implies a series of values and needs. As a simile
to the “Mobile Banking”, it would be the same as to affirm that the Financial
Inclusion can be solved with the International Family Remittances. So, to me
the objective questions that must be raised about Financial Inclusion are: (a)
How we should do it?, (b) Are we really taking in account the Financially
Excluded needs, knowledge, trust and attitudes towards banking?; (c) Can a
particular financial service complement to a financial product be the best and sometimes
seem to be “only” option to do it better and make it more lasting?, (d) Will
the Financially Excluded accept and use only Information Technology and
Communications (ITC) solutions?, or will these be more used by the already banked?,
(e) Do the financial excluded prefer the modern virtual systems to the
traditional paper instruments?, (f) Will Financial Inclusion be effective and
durable without intensive financial education?; (g) Will Financial Inclusion
efforts be sustainable or will these need to be addressed as very long term profitable
projects?, (h) Can the personal contact and persuasion be substituted by a payment
facility?; (i) How can a new Financial Included be motivated to value and keep
a continuity on the use of the banking services?; (j) Are there a series of restrains
due to myths that block a more ample vision of the Financial Inclusion (For
example: “The poor people cannot make savings”)? and (k) Will it be possible
that the traditional financial industry unconsciously does not like to have the
Financially Excluded as customers?.
This and many other aspects produce me
insomnia when addressing this important and very complex issue, for which there
are no simple answers. We seem to forget that we are dealing with people,
therefore the financial, technological and profitability aspects become
secondary to the psychological issues behind the Financial Inclusion.
I will try to answer some of these
questions, based on my experience in several cultures and for many years. Let
us go, I hope not to be boring you:
There are many ways to kill a flea,
so I am not convinced that there is an only way to do Financial Inclusion. The
fact is that all the independent research shows that “Mobile Banking” is
adopted mainly by the already banked; it has the behavioral logic of being
virtual; so is easy to be accepted by the educated urban users that live the ITC
in their everyday life. However in rural areas and marginal urban areas, where
the Financially Excluded tends to be; this is not so clear. In a recent
research done in Latin America interviewing a sample of rural people that do
not use financial products it was found that: The only financial service used
was bill paying: Next, about 33% would de willing to open an attractive regular
saving account, in second place a little over 30% agree that security was
important, surprise!; around 15% said that the rate of interest was important
(85% did not care), 12% considered de debit card important and less than 4%
consider the ATMs important. Maybe we are shooting at the wrong target, basing
the strategy on paying facilities and interest rates, instead of addressing account
attractiveness and security.
A lot of research has been done by
scholars on the M-PESA® “Mobile Money” and after on the associated savings
accounts: M-Kesho®, M-Shwari®, Iko Pesa®, M-Paisa®, but up to my knowledge, I
have not seen any research done to validate the possible effectiveness of any “Mobile
Banking” account before launching it, to match the Financial Excluded’s needs,
attitudes, perceptions, expectations and motivation to save. All the research
analyses that I read are focused on proving the goodness of the paying system.
This seems a little weird to me, as I never developed a new financial product
without a series of previous evaluations to detect what is important for the potential
users for which it is designed and in that way, assure myself that the
financial product will have the right balance between the customer’s and the
institution’s needs. Maybe that could be the reason why I experienced few
failures developing financial products and complementary services in many
countries. I do not like to assume things, because financial products and complementary
services failures are too expensive for the institution and very frustrating
for the users.
Research points to the banked as the
main stream users of the “Mobile Banking” services and, unfortunately, the results
are incomplete either because the new developed “Mobile banking” products do
not show precisely if the actual product’s users were banked or unbanked before
opening the account and in the M-Shwari® savings account, that has an automatic
loan attached to it, I never seen research on which product was the motivator
to open the account; the savings or the loan.
Preferring a tangible document to a
virtual solution has common sense among the Financially Excluded; printed information
is much trustworthy to process any claim and to control better the money for
this segment. In fact, the research mentioned before shows that more than 50%
of the sample considers the savings passbook as the most important aspect in a
savings account. So why are we going only virtual?, and does that fit the
majority of the unbanked?.
More independent research would be necessary
focused on the affectivity and acceptance of any of the actual Financial Inclusion
efforts done today.
An issue that must be cleared is who
the bankarized are and who is not. If we take the beneficiaries of only
Microcredits as bankarized, we find that millions of people are Financially Included
in the World. But, are these really bankarized?, have all benefited with an ample
offer of financial products or have only gain a liability (There it has been
many cases in the World like India’s Andhra Pradesh scandal that places doubts
on this, not to count the thousands of MFIs that disappeared because these were
not sustainable). Is this the Financial Inclusion that the World needs?. I can
only talk based on my experience, I think that a healthy financial inclusion
has to be clearly defined, At the time we were doing Financial Inclusion in
Brazil, in the 70s, we saw absolutely clear that only a “Savings Passbook” could be considered a healthy bankarizing
product, no matter the flavors (Basic savings account, savings account with a
money bank, a programmed savings account or a term deposit savings account,
etc., however. today most of the financial institutions still offer only the
traditional savings account and the term deposit). The reason for being so
clear on the issue maybe was because in the savings and loan housing sector,
where I worked at that time, home buying demanded a down payment that had to be
saved and in relation to the tools, we had no doubts either; mass marketing
motivation and financial education were fundamental to be successful, even more
than the savings account itself and the way to access the savings. For us the
two first were the main focuses on the Financial Inclusion issue. Today I have
seen little or none marketing efforts, except the push the “Mobile Money” by
the mobile telephone operators, and very little on financial education as
solutions to the Financial Inclusion, basing everything on the payment
facilities. But evidence along those 45 years of experience has shown me that
products and paying facilities contribute to sell the savings, but the
important issues are the motivations to open the savings products and these can
only be reached trough effective mass marketing and selling strategies to
satisfy the potential customers needs (That is why in 2012 Brazil reached 82,1%
of Financial Inclusion, nearly the double of the rest of Latin American
countries), Financial education is the aspect that brings forth to the mind of
the unbanked the unconscious needs of asset building as a family protection and
a better use of the money. It has no sense to ignore the fact that loans
require no selling efforts because these are a natural demand product and the
2008 crises proved that if you offer a loan with easy terms and tolerant
applicant qualifications the market will take them. But savings is another
different animal, the decision to save will always be in the hands of the savers,
who choose if they are going to save or not; how to save; where to take their
money and what to do with the savings; this is an offer product, reason why
there has to be in the Financially Excluded’s mind a clear understanding about the
benefits of making savings and the motivations to do it, not necessarily the easy
access to the money is the best or unique motivator, which points more to
consumption. To save is the reason of being for the “keeping money under the
mattress” or the informal savings schemes (ROSCAS, Pasanakus, Chains, etc.). So
there are a few clear facts associated to the Financial Inclusion efforts: (a) The
“Savings Passbook” has been proven for years that it is the best Financial
Inclusion product because it creates financial saving discipline, is physical
and trustworthy and is an asset to the saver and the family, therefore an
attractive savings product’s menu offer is needed, (b) Not necessarily the
services must be based totally on the CIT, which are only a mean not and end;
the end is satisfying customer needs of control and access for the savings; (c)
The personal and family needs for making savings as a way of protecting
themselves from uncertainty and as income generating assets must be addressed; (d)
The design and development of savings products must be based on the Financially
Excluded needs and not only on the institution’s needs for a win-win situation
for both parties; (e) Bettering the MFIs efficiency in order to give better
service with a variety of outreach options (Correspondent branches, electronic
purses, mobile banking, etc,) is needed; (f) Between the 60s and the 70s with
fixed interest rates, we charged nothing for managing the accounts, and we did
it by hand, today technology has proven to make massive and cheaper the account
management, and the spread between savings and loans has grown higher due to the
lowering costs. In Financial Inclusion efforts the fees must be revised and/or
eliminated; (g) The understanding of the benefits of an adequate use of the money
(Financial education and Money Management) and its use for asset’s building and
the understanding of the banking operations is a must; (h) The advantage of the
security of the money saved should be informed, usually guaranteed in the
regulated financial institutions or on the federation’s or union’s Guaranty
Funds in the case of non regulated Credit Unions or Savings and Loan
Cooperatives; (i) Not necessarily the CIT are the right answer, less the unique
answer. According to the International Telephone Union (ITU) (http://www.itu.int/en/ITU-D/Statistics/Pages/default.aspx)
a majority of countries are in the category of “less connected countries” and
the demanding attitudes of the Financially Excluded towards physical savings
passbooks, points to the “hand-matic” solutions as the best answer (I call so the
mix of CIT and manual operation, in fact in Spain the passbook with magnetic
strip is the major system used), even this are the way for progressively
changing the acceptance of “chemically pure” CIT solutions, which can take
generations and (j) Having the financial institutions to assume a profit on
Financial Inclusion efforts in the very long time; forgetting the short time
profit, because it would be a fantasy.
We must run away from the fashions
in the financial world. Today it has been shown that the Grameen model does not
work well in all environments and that modern versions have been designed that
do the job much better, but for many years the original model has been
fashionable and the price paid was the lack of sustainability of many MFIs and
the users loosing their credit sources. The World’s banking industries assumed
the massive lending fashion in the 90s using the financial engineering (NASA
style) statistical focus on massive lending as a token for low risk in a
perfect market, the more risk the higher the interests to compensate the
losses, It worked well until a critical mass of NINJAs (No job no income) loans
was reached and it exploded with the credit crunch of 2008 (With some symptoms before
with the Long-Term Capital Management L.P. (LTCM) in 1998, that was ignored).
Financial fashions are very dangerous because these are usually a long term
situation, because it can take years to reach critical mass and when these
explode it have a world wide impact, so any financial innovation needs to be
closely watched and studied objectively, not just becoming in “love on first sight”
and assuming that it is automatically the right answer. Progressive practice
and executions gives, with years of observation clues to the way to develop the
best financial options, but with the “Mobile Banking” I see a significant lack
of information and statistics and it is spreading too fast pushed by the mobile
phone operators, similar as it happen with the mass lending in the last 15
years and the myths raised of a perfect market. True, this lending worked for
several years until the loans defaulted and the financial institutions found
themselves full of toxic assets: As I say in my courses and consultancies, the
probability of dying in an airline accident is of 1 in 20.000, but in the
falling plane is 100%; the same happened with the 2008 credit crunch. So we
must avoid the fashions associated with Financial Inclusion and balance the importance
of the short term profitability of the efforts, giving more weight to the
significant efforts that are based on the customer’s needs, attitudes and
behavior and on the ways to reach these customers with the right products, the
right information, the right motivation and the right financial education, pointing
to the assumption of the customer of the fact that being bankarized is the best
option. The CIT have much to do with this issue, because multimedia is a good
way of reaching and informing the unbanked, but finally personal contact and
trust cannot be replace by webinars and premanufactured materials, marketing
and personal selling strategies are also a must, in my 45 years of experience
doing financial marketing, teaching and selling financial products I can
guaranty you that these work and these strategies will do very well. But
marketing has been demonized as the cause of the excessive or exuberant
consumption, when in fact the needs for consumption are in our ADN since the Iron
Age (On this I will dedicate a future Note). But when marketing is used
ethically to motivate people to save, being protected and make income, the
negative issues associated with the abusive marketing strategies has no sense.
That is the reason why since 1965 after I graduated in psychology and started
to work in a savings and loan association, I studied and applied marketing to
promote savings, because I reached the conclusion that many people would
benefit from the right application of this technology. We must be careful to avoid the shot from the
rifle’s butt in relation to the Financial Inclusion efforts, some more “open
source” produced research on the Financial Excluded needs and financial patterns
of behavior are required, and the follow up on the results of the tools used in
Financial Inclusion could bring the right focus on it. Good luck!
Very best regards
Jose Linares Fontela
No comments:
Post a Comment