Monday, November 20, 2017

Continuing the conversation about “financial inclusions” in Latin America – onto Mexico

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Magdalena Villareal, CIESAS Occidente, Maria Elisa BalenUniversidad Nacional de Colombia and Soléne Morvant-Roux, University of Geneva
"What I haven’t yet understood is what this business of financial inclusion is really about… and more importantly, is there anything new?"
This was the important question posed by Dr. Lourdes Angulo-Salazar at the end of the first day of the seminar, "Current Dilemmas Concerning Financial Inclusions," which took place in Guadalajara, Mexico on May 14 and 15, 2017. While it might seem to be a curious question to end with, there are two aspects of the ongoing dialogue during that day’s discussions that she captured with her intervention.

On the one hand, there continues to be a productive skepticism with regard to the explicit goals of financial inclusion and how these are informed by underlying objectives, whether in terms of governance, the favoring of particular financial industries - or both. Yet on the other hand, such doubts were also complicated through the variety of perspectives and case studies offered by presenters in the seminar.

Audience at the seminar. Photos by Saúl Justino Prieto Mendoza.
“Financial inclusion” seems to be on everyone’s lips these days, in different countries in Latin America and beyond. But it means different things. For one presenter, financial inclusion implied an unquestioned policy target akin to bancarization, one predominantly envisioned as a vehicle for positive “economic and social development.” For another, financial inclusion was the problematic reification of social hierarchies through interest rates. A third presenter inscribed financial inclusion within a genealogy of failed development remedies prescribed sometime after the microcredit crisis, wondering whether “financial inclusion” is merely another diversion from more pressing discussions we should have about the need for structural change in our economic systems. However, other presenters discussed the ongoing need for financial inclusion in the context of an explosion of alternative currency projects in Brazil, or concerns about deportation policies under the Trump administration in the US. Without a reliable way to send their savings home, Mexican migrants increasingly fear that deportation could entail the complete loss of their savings, not only through physical deportation, but also through restrictions on keeping accounts remaining in the US in their own names, irrespective of whether they are in Mexico or the US. Given the complexity of these dilemmas, what financial inclusion is (or should be) about is far from settled, as Lourdes’ concluding question reminded participants.

Such lively discussions generated a great atmosphere for the seminar, organized by CIESAS (Center for Advanced Research and Postgraduate Studies in Social Anthropology), IMTFI, and the University of Geneva, with the aim of launching a regional IMTFI satellite in Latin America.

Participants included members of policymaking bodies such as Carlos Alberto Moya, Regional coordinator for the Alliance for Financial Inclusion (AFI) and Nancy Esthela Conde from the Central Bank of Ecuador, as well as academic practitioners such as Mariana Carmona and Isabel Cruz from the Mexican Association of Social Sector Credit Unions (AMUCSS) in Mexico, and Leandro Morais from UNESP (Universidade Estadual Paulista) from Brazil. Alexandre Roig from the University of San Martín in Argentina, Solène Morvant from the University of Geneva, Maria Elisa Balen from the National University of Colombia, Ursula Dalinghaus from IMTFI, Clement Crucifix from the University of Louvain in Belgium, and Enrique García and Magdalena Villarreal from CIESAS in Mexico rounded out the panels and provided a range of interdisciplinary scholarly perspectives.

In what follows, we highlight three key issues discussed in the event. (Presentations can be watched in full on the CIESAS Occidente channel of YouTube.)

1) Discrepancies between visions of financial inclusion 
While bancarization (as a tool for promoting financial inclusion) is acknowledged as useful for the poorest segments of the population, the strategies identified for implementing financial services exhibit different patterns. Carlos Moya and the Alliance for Financial Inclusion are promoting financial inclusion as part of an international agenda that should be approached via national strategies that take into account industry perspectives. Moya insists that financial inclusion must be included in government policies, that regulatory frameworks should be put in place, and that monetary incentives could be offered to encourage proper operation of financial markets. “The challenges Latin American governments face vis-à-vis financial inclusion,” he says, “include promoting capillarity in financial services within rural sectors, adopting the concept of green finances, and eliminating the gender gap in the use of financial services.”

In the same vein, Nancy Esthela Conde, from the Central Bank of Ecuador spoke of her country’s efforts concerning digitalization and its effects. Ecuador has implemented a host of new financial services such as efectivo desde mi cellular (cash from my cell phone) as a means of payment and other monetary transactions. As of May 2017, more than 335,000 accounts had been opened through this digital money platform, and transactions totalled more than $8.4 million. She argued that government should continue promoting financial inclusion in addition to financial education and the protection of consumers’ rights. This includes constant improvement of security systems related to electronic financial services.

Leandro Morais also noted in his presentation the role of governments in the development of financial services. He highlighted how, in the case of organizations and services associated with the solidarity economy, different political views of successive Brazilian governments affect these processes in nonlinear ways.

Problematizing the notion of “a single financial industry and separate national spaces,” Isabel Cruz’s presentation concerning migrant workers in the US who are “sending money home” detailed calls for grassroots social banking. These efforts involve working closely with migrants to account for the specific contexts faced by this vulnerable population segment in multiple countries.

Presentations by Solène Morvant and Mariana Carmona, Maria Elisa Balen and Enrique García highlighted that beyond the usage of formal financial services–be they digital or not–populations in Mexico and Colombia continue to combine a plurality and diversity of monetary and financial practices. These are embedded in socio-cultural logics that do not obviously match the criteria for ‘modern’ financial practices. They find that instead of a narrowing of financial repertories, these new forms of financial inclusion extend them.

Enrique García and Clement Crucifix. Photo by Saúl Justino Prieto Mendoza 
While financial inclusion is presented as a neutral socio-economic policy, then, most participants agreed that it was important to inquire into the underlying social conflicts and not lose sight of how financial relations are social and are thus embedded in power asymmetries.

Alexandre Roig made such relations explicit in his closing talk about state practices in Argentina, where the State plays a key role in improving access to financial markets for the workers belonging to the so-called “sector popular”.
2) The digital vs. cash frontier 
One of the main issues traversing financial inclusion (or inclusions, as some of us would have it) is digitalization. Digitalization implies the deployment of specific infrastructures and a change in the cost of moving money around whose impact can be variable, as Maria Elisa Balen noted in her presentation. No less important, digitalization carries with it the idea of enhanced possibilities of intervention on account of the electronic traces that it produces. No wonder, then, that digitalization figured in presentations on subjects ranging from the practices of microcredit bureaus to geopolitical discussions.

Clément Crucifix reported on his ethnographic study of a credit bureau in a Mexican microfinance organization. He described how field staff spend most of their time looking at information gathered on borrowers displayed on screens instead of interacting with them in person. As a result, such information is subject to manipulation, sometimes in flagrant ways, by agents who are seeking to achieve their targets. At the same time, the credit information recorded in such platforms transforms subjectivities outside of the credit bureau. Thus, credit agents’ practice of seeking out ‘trustworthy’ people in the locales that they visit and asking them to refer them to others–sometimes even taking out loans for those others–engenders not only ‘financial creditworthiness’ as a new kind of capital, but also chains of influence that are used for electoral purposes. Digitalization therefore produces effects that extend well beyond the individual represented on the electronic platform.

Beyond the politics of digital accounting records, there is also the issue of money’s circulation in digital form. Ursula Dalinghaus talked about a new episode in the “war on cash” in the context of demonetization in India and the ongoing push to promote digital financial inclusion by eliminating cash. Drawing on differences in cash usage even in so-called developed markets in Europe, she noted how a preference for cash over digital money is not explained in terms of how ‘advanced’ or ‘developed’ an economy is. She highlighted how various factors influence cash-usage and preferences, such as past experiences of hyperinflation and economic change in Germany or household strategies in the informal economy in India, and whether or not people trust in the state or monetary institutions to guarantee the stability of value for the future. Beyond delineating arguments and available evidence in the digital vs. cash discussion, where a focus on money laundering and terrorist financing in relation to cash has become prominent, she called attention to the framing of the debate. Why is it that the coexistence of cash and digital money is now being framed as problematic and even coined in terms of a war between two sides? This question, just like the one concerning the "true implications” of financial inclusion, remains open. (Read Dalinghaus's white paper: Keeping Cash: Assessing the Arguments about Cash and Crime)

3) Re-politicizing research on financial inclusion and the future of the regional research center
One of the aims of the Latin American regional research center is to create a space for dialogue between academics and practitioners on different forms of money and financial inclusion and the social relationships that these entail. The seminar was successful in laying a foundation for this dialogue with a participative and engaged audience.


The audience included a representative from PROSPERA, the national program for social policy, which oversees conditional transfers for the lower income population and other financial inclusion initiatives. Members from Financiera Nacional de Desarrollo Agropecuario, Rural, Forestal y Pesquero, and DIF (Desarrollo Integral de la Familia in Jalisco, one of the main social policy departments of the state government), were also present. NGO representatives, students, and researchers also participated in the seminar.

Through the IMTFI satellite we hope to continue these endeavors. We are interested in developing cross-disciplinary dialogues where complex theoretical issues can be discussed interactively with diverse participants, from practice-oriented researchers, to policymakers, to scholars, among many others. Such dialogues might take the form of panel discussions and seminars, or joint publications and other forms of dissemination. We are particularly interested in developing and organizing collective research projects involving different countries and diverse sectors of the population.

Magdalena Villareal is an international board member of IMTFI and senior researcher and professor at the Mexican Center for Advanced Research and Postgraduate Studies in Social Anthropology (CIESAS Occidente). 

Maria Elisa Balen is an international board member of IMTFI and an affiliated researcher at the Universidad Nacional de Colombia. 

Soléne Morvant-Roux is an international board member of IMTFI and Assistant Professor at the University of Geneva.

Monday, November 13, 2017

Drama in the payments infrastructure and saturation in financial education: Discussing new avenues of research around financial inclusion in Colombia

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Maria Elisa Balen, Universidad Nacional de Colombia and Edgar Benítez, Universidad ICESI 


We are reporting on the forum entitled “'Opening the Economy': Debates about Financial Inclusion - between Profitability and Over-indebtedness” that took place on May 4th at ICESI University in Cali (Colombia), and the workshop on the following day. These two events, bringing together perspectives from public policy, industry, and academia, sought to motivate new generations of researchers to study the promises, problems, and challenges surrounding financial inclusion developments (for the full program, click here). Yet they also became a lively space for discussion between the audience and panel participants. We want to highlight three sets of insights pertaining to the conference’s opening talks and subsequent panels, pertaining to the pluralization of the notion of financial inclusion, what is at stake in current changes in the payments infrastructure, and the important yet saturated field of financial education.

The pluralized notion of financial inclusions

Being financially included can have different interpretations, and the conference’s two opening talks would set the stage for the debate. Carlos Moya gave an overview of the programmatic strategies being followed by different countries across the region that are part of the Financial Inclusion Initiative for Latin America and the Caribbean (FILAC), which he coordinates. Throughout his presentation he stressed the positive impact of having formal access to credit, saving accounts, and insurance for poor communities; in this view, financial inclusion means inclusion into financial formality. Such a perspective was problematized by the second presenter, IMTFI fellow Magdalena Villareal from CIESAS in México. She pointed out not only how among communities ‘financial inclusions’ already take place through participation in different circuits and types of debt, but also that what is referred to as the formal financial system also entails different sorts of inclusion depending on the varied negotiation power of particular individuals and populations.    

The pluralized notion of financial inclusions, left in the air as an invitation, helps ask not only whether populations are being financially included, but what type of financial inclusion is taking place. The following panels would, in a way, pursue the specification of the financial inclusion taking place when discussing both developments in the country’s financial infrastructure—marked by the move towards digital payments—and the challenges of financial education in contexts where expensive yet highly available loansharks (known as paga-diarios or gota a gota) can constitute not only pervasive practices but possible interpretive frameworks to use as starting point for trainings and campaigns.

Drama in the payments infrastructure 

“You need to learn when to commit suicide.” That was the beginning of the answer given by Hernando Rubio, the charismatic CEO of Movilred, to a student in the audience asking what his so-far successful enterprise could do if/when Facebook starts offering electronic payments. “And then, like the phoenix, be reborn as something new,” he continued. Rubio has been one of the main supporters of Colombia’s recent financial inclusion law and the decree that introduces a new entity –Societies Specialized in Electronic Payments and Deposits—into the regulatory framework of Colombia’s financial system. For Rubio there is no doubt that digital payments are the future not only of cheaper transactions, but also of democratizing credit on the basis of cheaper and more effective ways of knowing customers thanks to the harnessing of electronic data.

 The other presenters on his panel on payment infrastructures had similar, though more tempered, views. Andrés Velásquez, from the financial cooperative Confiar, insisted on the importance of using different, complementary means to reach and interact with clients, including digital payments as well as chatting over coffee. But it was Ricardo Gómez, regional manager of Colombia’s Banco Agrario, who offered a contrastingly different perspective. Owner of the largest and most dispersed physical infrastructure throughout Colombia’s

territory, Banco Agrario’s high operational costs include the hiring of helicopters to move cash in and out of distant municipalities where the lack of telecommunications or even electrical infrastructure makes digital options unavailable. If digital is the future, then there is still a long way to go in order to avoid such populations being left behind.

Whether the time for more traditional financial entities to ‘commit suicide,’ as Rubio would say, is coming soon or not, a historical example came up concerning Banco Agrario itself that brought into relief the importance of alternative payment infrastructures. In the 1990’s, the large chain of drugstores called Drogas la Rebaja, owned by family members of the heads of Cali’s drug cartel, was included in what came to be known as the “(U.S. President) Clinton List.” Being on that list entailed sanctions, including exclusion from the payment networks of U.S.-based Visa and Mastercard. Drogas la Rebaja would turn into a cooperative run by its employees, yet continue to be part of the Clinton List. It was only through Banco Agrario that the largest drugstore chain in the country, with more than 4,000 employees, was able to have bank accounts to continue operating during the decade-long lag between the priorities of the U.S. war on drugs and those of the Colombian government. What this example brought home is that the configuration of payment infrastructures not only entails varied costs, but also can affect sovereignty.
In sum, if the move towards digital payments seems inevitable and large changes are already taking place in this regard, then the availability of alternative payment infrastructures seems key not only if one seeks to avoid deepening the exclusion of certain populations, but also considering the margin for maneuvering given by different payment infrastructures that are far from neutral or apolitical.

Dispersion and saturation in financial education

The panel on financial education had three different perspectives on the topic, though they shared a basic assumption: people need more financial education in Colombia. Nidia Garcia, head of the department of Financial and Economic Education at Banco de la República (Colombia´s central bank) did a presentation on the main points of the national strategy of economic and financial education (EEF). Based on healthy financial habits, responsible use of money, and financial capabilities, that strategy represents the first attempt at promoting a unified national framework for financial education. Because the EEF was launched just a month ago, it is too early to have an idea of its reception among institutions, banks, IMFs, and the like. This top-down process will be interesting since financial education is not a new topic among institutions in Colombia like Fundación WWB-Colombia and Fundación Paz y Bien, whose representatives constituted the rest of the panel.

Daniela Konietzko, the director of Fundación WWB-Colombia, a leading microfinance institution with a bank of its own, pointed to some difficulties that they have faced during the last years in their programs. Among them are two that represent an important challenge for any institution interested in promoting financial education. First, time-intensive educational programs have been the most effective ones in terms of developing financial capabilities, yet the fact that poor women have multiple social and economic responsibilities in their homes and micro-businesses makes it harder to develop these kinds of programs for them. Second, since financial education has become so popular among institutions, people have begun to feel that a saturation point has been reached.

That saturation was also emphasized by Alicia Meneses, who has helped to create and develop the educational model of Fundación Paz y Bien, a grassroots organization. In her view, “People don´t like going to workshops or taking classes; they are tired.” In order to avoid this situation, she and her workmates have developed community-based interventions as the key components of their financial education programs. Rather than emphasizing individual capacities and skills—as the former approaches did—Alicia believes that acquiring good financial habits is a collective process of learning-by-doing. In a similar fashion to the Grameen Bank model based on social capital and networks, Fundación Paz y Bien showed us that learning the habit of saving requires collective strategies (i.e. saving clubs) with common purposes.

In sum, what is identified as the continued need for financial education faces a crowded scenario, not only in terms of the multiple activities in which potential beneficiaries such as poor women are engaged, but also in terms of the varied and dispersed financial education initiatives they have been already exposed to, which adds up to a feeling of saturation.

In such a context, is changing financial practices a matter of systematizing the diverse financial education initiatives and evaluating their outcomes in order to move towards a more coordinated approach based on lessons learned, as the central bank seeks to do? Is it a matter of designing strategies that are carefully tailored to the life conditions and motivations of particular populations? Or is it, as the Movilred CEO emphasizes, mainly a matter of making credit cheaper and more available using digital technologies, so that customers on their own will see the benefit and choose the better option? Such were the questions left hanging in the air.

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This event was part of two longer term endeavors. On the one hand, this was the first in a series of forums that ICESI University is launching under the title Opening the Economy, which seek to foster academic reflection about the economy from viewpoints that are not limited to those of mainstream economists. On the other hand, it is part of the process of configuring the Latin American node of the international network of researchers that are part of IMTFI. In the upcoming months, we plan to launch an online platform in which researchers working on social studies of money and finance in Latin America can learn about each other’s work, interact, and pursue common research agendas.

Maria Elisa Balen is an international board member of IMTFI and an affiliated researcher at the Universidad Nacional de Colombia. Contact Maria Elisa at mebalenu@unal.edu.co; Edgar Benítez at ebenitez@icesi.edu.co


Tuesday, November 7, 2017

Reflections on the “Financial Inclusion of the Poor,” workshop in Karachi (Part Two): Decolonizing Financial Inclusion

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Noman Baig, Habib University and Bridget Kustin, Saïd Business School, University of Oxford
(continuation of Part One - Workshop Reflections)

Third, workshop conveners Dr. Noman Baig and Dr. Hafeez Jamali (director of Habib University’s Interdisciplinary Research and Action Center) assembled an unusually diverse group of participants: from financial technology start-ups, conventional and Islamic banks, academia, the State Bank of Pakistan – and even the State Bank of Pakistan’s Money Museum & Art Gallery.

Samar Hasan of development finance nonprofit Karandaaz and founder of a new social enterprise start-up, Epiphany, opened the workshop talks on a startling note: She asked the audience of approximately 200 who knew what “financial inclusion” even meant. Only a handful raised their hands. As a communication head at Karandaaaz, Samar Hasan has been actively engaged in raising awareness on digitization of finance in Pakistan. Later on, Fawad Abdul Kader and Zain Khalid Bhatti of Bank Alfalah, a Pakistani Islamic bank, emphasized that even for those within the banking and finance industry, “financial inclusion” can take on a variety of different meanings, and be understood through varying perspectives. Subsequent conversations examined potential risks of financial inclusion, including new zones of exclusion or precarity and new vulnerabilities that digital money users might face. As a banker in Bank Alfalah, Fawad Abdul Kader made a distinction between the conventional bank and a retail agent. According to him, “Banks function under a controlled environment. Every transaction is controlled by a dual verification, whereas retail agents are relatively operating freely in financial circuit. Retail agents work on their benefits and on their terms. You can control the agents. Now because of this, it is becoming difficult to convert accounts from retail agents to mobile wallets.” Kader emphasized the need to customize banking services according to the population segment. For instance, he said that there is no single financial product for agricultural workers, who are the largest labor force in Pakistan.

The development of mobile wallets will bypass the agent network, who work on small commissions of 7-8% per transaction. Mobile wallets will give the corporations direct access to the customers who, instead of storing money in their conventional wallets or pockets, are now being encouraged to store it in mobile wallets. The money deposited in mobile wallets is then lent to commercial banks with an interest rate, which then gets further distributed in loans at a higher rate of return. Mobile wallet companies such as Finja and Monet believe that the historical monopoly of banks over money will be finally broken with the advent of smartphones. Fintech companies expressed great optimism about the role of smartphones in digitizing money.

Session III: Financial Inclusion - Imaduddin, Kader, Bhatti, Bizinjo, Jamali (L to R)
Speakers agreed that adoption of new services, products, or technologies is occurring slowly, despite their tremendous social potential (i.e. the uptake of mobile-based services for the empowerment of women). Shoukat Bizinjo, Head of the State Bank of Pakistan’s Information Systems Examinations Division, provided an overview of Pakistan’s evolving digital regulatory environment, including payment systems, electronic funds transfer, and IT security in the early 2000s, and branchless banking regulations in 2016. Even a single ATM machine, Mr. Bizinjo noted, depends on complex, interrelated infrastructures implicating an array of regulations. In his presentation, he explained the Payment System & Electronic Funds Transfer Act 2007 issued by the Government of Pakistan. According to Bizinjo, the law allows the government to “inspect the premises, equipment, machinery, and apparatuses” of any financial institution involved in funds transfer. The law gives broad power to the government to legalize and streamline payment systems for greater “efficiency, safety, and reliability.” However, Bizinjo particularly highlighted the fact that the “central bank strongly recommends safety and security over efficiency.” In a neoliberal age of speculative finance, in which money and capital have been increasingly transformed into an immaterial reality for the sake of efficiency and speed, the state's responsibility for ensuring the safety and security of money becomes the top priority, at least in theory. Bizinjo also highlighted a regulatory framework for branchless banking which is rapidly growing in Pakistan. In short, the role of the central bank in regulating, controlling, and surveilling money circulation was the central concern of the presentation.

Muhammad Imauddin, a leader in microfinance policy at the State Bank of Pakistan and head of the National Financial Inclusion Strategy Secretariat at the State Bank, pointed out that the Finance Ministry’s 2015 national financial inclusion strategy reflected its commitment to the sector’s growth. In other words, Pakistan’s regulatory sector is amenable to financial inclusion, but infrastructure transformation takes time, due in part to the way that social issues are intertwined with regulatory concerns. Social issues affecting the work of regulators—but that require input from a variety of actors—include the longstanding exclusion of women from access to formal finance, and the distinct needs of merchants versus customers.
        
Many speakers referenced basic mobile phones, smartphones, Facebook, and WhatsApp when discussing the prospects of financial inclusion. These tools and free platforms have changed the fabric of Pakistani life through their rapid uptake by millions. The financial inclusion products, tools, services, and platforms discussed at this workshop—along with appropriate regulations and risk protections—can be similarly transformative.

Keynote: Dr. Asma Ibrahim, Director of
the Money Museum & Art Gallery
Keynote Speaker Dr. Asma Ibrahim, Director of the Money Museum & Art Gallery, placed this transformative potential in historical context through an overview of the evolution of currency and coinage, from the ancient Bronze Age of Harappa through the 20th century. Her presentation was extremely educational for bankers and anthropologists to understand how the shape of money continues to transform through various social and political eras and contexts. For instance, 16th century Mughal emperor Akbar replaced Kalma, the first principle of Islam, expressed as No God but God. Instead, he inscribed Allah Akbar Jalla Jalala (God is most Great, Eminent is his Glory), emanating from his newly devised creed known as Din-e-ilahi. Another noticeable aspect is how symbols disappear from the coinage. In 17th century Mughal India, for instance, under Mughal emperor Aurangzeb, the Arabic text replaced symbols on coins. This is due to the fact that Aurangzeb was a conservative ruler who found iconography against legal Islamic codes. One could actually read a social and political history of the region by reading the symbols, icons, and texts on the coins. Each coinage system represents an era, a social force, a kind of reminder of the past age. Her presentation gave an impression that money is a mnemonic device, or what Keith Hart calls a ‘memory bank,’ that stores personalized and collective memories. As a Director of the Money Museum & Art Gallery, Asma Ibrahim has masterfully curated a history of currency systems in one of the country's finest museums, located inside the State Bank of Pakistan, Karachi.

One thing that has emerged from the discussion with bankers and fintech practitioners is the lack of research on the financial needs of common people in Pakistan. They commended Habib University's efforts to initiate a conversation on money and finance, and they would like to see research become a bigger part of the industry. However, research for them is not social science research in which a scientist explores and critique social facts. Rather, practitioners want to see market research, which can help them to sell their products to the wider population.

This ended the workshop on an unexpectedly provocative note: The fact of transformation (or “disruption”) is not itself remarkable or new. What remains consequential are its effects: Who will the transformation benefit, and how? Who will be left behind, and how? How will newly generated value be assessed, and where will newly generated wealth be distributed?

Bridget Kustin is an international board member of IMTFI and Postdoctoral Research Fellow, Saïd Business School, University of Oxford

Noman Baig is also an international board member of IMTFI and Assistant Professor in the School of Arts, Humanities and Social Sciences at Habib University, Karachi. 

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Links to videos
Bridget Kustin (Moderator, Saïd Business School, University of Oxford); Samar Hasan, Karandaaz; Qasif Shahid, Finja; Ali Sikander, Paysys Labs

Session II: Branchless Banking 
Sohaib Khan (Moderator, Columbia University); Ahmed Ali Siddiqui, Meezan Bank; Talha Leghari, Monet; Bridget Kustin, Saïd Business School, University of Oxford

Session III: Financial Inclusion
Dr. Hafeez Jamali (Moderator); Fawad Abdul Kader, Zain Khalid Bhatti, Bank Alfalah; Shoukat Bizinjo, State Bank of Pakistan; Muhammad Imaduddin, State Bank of Pakistan
Dr. Asma Ibrahim, Director, State Bank of Pakistan Money Museum & Art Gallery

Monday, November 6, 2017

Reflections on the “Financial Inclusion of the Poor,” workshop in Karachi (Part One): Decolonizing Financial Inclusion

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Noman Baig, Habib University and Bridget Kustin, Saïd Business School, University of Oxford

On April 8, 2017 the Institute for Money, Technology and Financial Inclusion co-sponsored the workshop, “Financial Inclusion of the Poor,” at Habib University in Karachi, Pakistan. In the landscape of talks, conferences, and seminars concerning economic or financial inclusion, this workshop was notable for three political and ethical reasons.

Dr. Noman Baig - Opening Remarks
First, IMTFI’s co-sponsor, Habib University, is Pakistan’s first liberal arts institution. 
Innovation, research, and development requires not just the STEM excellence fostered by polytechnics and traditional universities, but also the ability to think creatively across disciplines — the hallmark of a liberal arts education. The main questions addressed by the workshop’s speakers illustrate that financial inclusion isn’t just a tech or regulatory issue, but requires engagement with the complexity of human behavior: How are new financial instruments such as mobile banking and branchless banking being deployed in poor communities? How are state regulations and surveillance programs affecting channels of capital flows? How are financial inclusion programs addressing basic income inequality issues?

Human behavior and the practices and beliefs of different communities—what anthropologists study as “culture”—easily resist comprehension, much less prediction, through models, algorithms, or randomized control trials. Habib University is an exciting setting when considering how Pakistan can cultivate the next generation of social scientists able to design research methodologies suitable to the multi-disciplinary questions of financial inclusion. Equally critical is innovation and entrepreneurialism that can lead to new products, systems, and platforms uniquely responsive to the needs of Pakistan’s incredibly diverse population. An insidious effect of this neoliberal “marketization” of development is that entrepreneurialism and self-reliance become valorized as ideal and preferred traits of the poor or precarious, such that those who do not become entrepreneurs and might struggle with self-reliance are recast as simply lazy, unwilling, or otherwise “responsible” for their poverty.

Session 1: Digitization and Money (14:10) - Hasan, Sikander, Shahid, Kustin (L to R)
The distinction to make about the need for Habib University and other Pakistani institutions to cultivate entrepreneurialism and innovation in the fintech sector is because of the money, influence, and power that’s at stake. Workshop speaker Talha Legari of Monet, a payments processing solutions provider, noted that only 23% of Pakistani adults have a bank account, and only 3% save money in a formal financial institution. In other words, the population is particularly under-banked, especially compared to regional neighbors. Western telecommunications companies, payments and money transfer platforms, and fintech services already have the business plans in place to reap tremendous profits as millions inevitably take up formal digital financial services, whether it’s in mobile money services, remittance platforms, or branchless banking. This quite rightly makes “financial inclusion” in its current incarnation a controversial proposition to champion: foreign corporations, many legally required to increase shareholder value every quarter, quite easily have profit orientations at odds with more comprehensive, holistic local needs of poverty alleviation and development. This is not to say that corporations cannot meaningfully benefit the communities in which they work, or engage in "social business" – many do. The point here is about value extraction: With innovation and entrepreneurship, much of the wealth that Pakistan stands to generate through financial inclusion services could be kept within Pakistan, providing a much-needed boost to the GDP. According to Samar Hasan:
“Financial inclusion is a state, or a situation, in which everybody, every individual and institution, has access to financial services and products at an affordable rate, and they should be delivered in a responsible manner.” 
Financial inclusion is important because there are 2 billion people on Earth who do not have access to financial services. “It exposes them to vulnerability and risk,” Hasan argued. That is why the need for a regulatory framework for mitigating the risk of scaling financial inclusion was also emphasized. For instance, if retails agents use illegal ways of doubling commissions, then the authorities must blacklist the agents.

Cultivation and support of a robust Pakistani fintech/financial inclusion sector thus becomes an issue of political, economic, and ethical importance. It’s also indisputable that the poor would benefit immeasurably from the convenience, security, and lower costs of money handling/management that financial inclusion services make possible.

How can both international and Pakistani fintech/financial inclusion industries proceed to ensure that new zones of exploitation and insecurity are not created?

This workshop introduced participants to innovation currently taking place. Ali Abbas Sikander, founder of groundbreaking Tameer Microfinance Bank and current director of Paysys Labs, a technology platform provider for digital payment systems, presented an overview of challenges and opportunities in Pakistan’s financial inclusion sector spanning Sikander’s experience over the past 25 years. Particularly crucial, he argued, are point-of-sale interfaces, agent networks, support for Pakistani entrepreneurs, and the interoperability of emerging systems. He also noted that keeping money circulating within digital networks for multiple transactions should be a primary goal; the costs of financial inclusion become high once money “exits” the digital economy and gets transformed into cash – this refers to the importance of the financial “ecosystem” that the Bill & Melinda Gates Foundation’s Financial Services for the Poor program is working to support. “In Pakistan, formal things become informal really quickly if you do not have total control over it,” said Sikander. He stressed having control over infrastructure, which keeps ongoing processes in line with social change.

According to Sikander, “In Pakistan, the entire financial inclusion program is run by the agent network.” Running such a network means loosening control of, for instance, 100,000 agents. “The bulk of the revenue goes to the agents,” Sikander stressed. In his view, fintech companies such as Monet, Paysys Lab, and Finja, as technological platforms, can bring together banks and telecommunication companies in order to offer direct services to customers.  According to Sikander, “What would be really interesting is that once the cash comes into the system, it should not just be cashed out immediately … because the cost of putting the cash in and the cost of getting the cash out makes the entire project of financial inclusion very expensive.” The money must stay in the system for financial inclusion to work effectively. If cash is pulled out immediately, then it does not circulate fully in the circuit, and hence does not benefit every individual plugged into the loop. The longer it stays in the system, the greater value it will accrue.

Speaker Qasif Shahid of Finja, a technology company developing such interoperable digital ecosystems, focused on the tremendous prospects for mobile banking, mobile money, and digital transfer services to significantly drive down the high costs of managing physical cash—points also central to financial inclusion initiatives across the globe. But Shahid connected these to Pakistan’s specific challenges: If digital commerce is free and entrepreneurialism among the general population (and not just the elite) is nurtured, he argued, then corruption will lessen, transparency will increase, and GDP and quality of life will improve. Shahid was particularly optimistic about technologically driven social change, which he called "disruptive transformation" – changing the behavior of millions of people over a quick span of time. “When hundreds of millions of people reinvent their relationship with money, which means they pay differently, they save differently, they invest differently, they protect differently, then that is when the disruptive transformation has happened,” said Qasif. For instance, on the issue of demonetization in India, which sparked scintillating conversations between the speaker and the participants, Shahid thinks this kind of transformation was needed, but it should not have been done as it was by the Modi government in India.

As CEO of a fintech company, Qasif particularly emphasized the need of reducing cash and paper-based transactions in order for the country and the population to prosper and progress. According to Shahid, “If we leave the things the way they are, then it will take Pakistan at least 10 years to become a cash-lite country.” Demonetization, however, can bring disruptive transformation that can reinvent the relationship between people and money. In his view, digital commerce has to be “free, frictionless, and real-time” in order to become a productive force in society. For instance, in Pakistan, only 4% of people consume credit because of the large number of people who are not part of the formal banking structure. This can change when we use mobile wallets, but it is only possible with demonetization.

Second, a workshop about financial inclusion in Pakistan was actually in Pakistan, and nearly all participants and attendees were Pakistani. 
In this setting, Pakistanis are not reduced to data points, or archetypes, or anonymous randomized control trial subjects. Instead, they determined the course of the conversations. Again, in the landscape of financial inclusion meetings this is more unusual than it might seem. But when almost everyone in attendance has enduring connections to a place and its people, conversations assume longer time horizons; the past is invoked to assess the present, and assessment of possible futures becomes personal and urgent.

Session II: Branchless Banking - Kustin, Leghari, Siddiqui, Khan (L to R) 
IMTFI is unique in the financial inclusion space because building the capacity of researchers and institutions outside of the West is central to its existence. IMTFI has funded over 147 projects in 47 countries, conducted by over 187 researchers, more than 70% of whom are from developing countries. IMTFI’s goal in partnering with Habib University is to further shift the locus of financial inclusion knowledge production to the countries that are the subjects of financial inclusion work (although, as new research from Lisa Servon makes abundantly clear, the exclusion of the wealthy United States from financial inclusion initiatives should change, given the predominance of “alternative,” non-bank, and exploitative financial services catering to exponentially rising numbers of poor and precarious Americans).

One unique valence of financial inclusion conversations in Pakistan, for example, is a strong interest in Islamic finance. At the workshop, Ahmed Ali Siddiqui, Senior Executive Vice President of Pakistan’s premier Islamic financial institution, Meezan Bank (and one of Karachi’s most renowned experts on Islamic finance and banking), provided an overview of Pakistan’s unique growth potential in the Islamic finance sector. Challenges to uptake include low client literacy, uneven access to appropriate documentation (even Pakistan’s national identity card), gender discrimination, and the requirements of local religious beliefs and ideologies. According to Siddiqui, Islamic banking aims to fulfill the “social and ethical needs of the customers.” This makes Islamic banking more popular than conventional banking among the large majority of people, Siddiqui claims. According to Siddiqui, the number of microsavers has jumped from 16 million to 23 million in the fourth quarter of 2016. The credit goes to mobile company JazzCash, which has added around 5 million mobile wallets to the system. Everyday 100,000 mobile wallets are being added, compared to the slow growth rate of new accounts in the conventional banking system. In short, Siddiqui’s presentation focused on finance with Islamic ethical and moral values that frees transactions from the curse of interest/usury. He cherished the fact that some people do not even step inside of a bank's premises in Turkey where interest is permitted.

Related to this, Bridget Kustin’s presentation complicated any straightforward notion of client “financial literacy.” In contrast to some of the fintech presenters, she explained that anthropological methods demonstrated how client accounting practices and ways of understanding the “Islam” of Islamic microfinance are not necessarily shared or even understood by the institutional provider.

Read on to Part Two - Workshop Reflections

Bridget Kustin is an international board member of IMTFI and Postdoctoral Research Fellow, Saïd Business School, University of Oxford

Noman Baig is also an an international board member of IMTFI and Assistant Professor in the School of Arts, Humanities and Social Sciences at Habib University, Karachi. 
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Links to videos
Session I: Digitization and Mobile Money
Bridget Kustin (Moderator, Saïd Business School, University of Oxford); Samar Hasan, Karandaaz; Qasif Shahid, Finja; Ali Sikander, Paysys Labs

Session II: Branchless Banking 
Sohaib Khan (Moderator, Columbia University); Ahmed Ali Siddiqui, Meezan Bank; Talha Leghari, Monet; Bridget Kustin, Saïd Business School, University of Oxford

Session III: Financial Inclusion
Dr. Hafeez Jamali (Moderator); Fawad Abdul Kader, Zain Khalid Bhatti, Bank Alfalah; Shoukat Bizinjo, State Bank of Pakistan; Muhammad Imaduddin, State Bank of Pakistan

Keynote: Journey of Money, A walk through history of finance from 20000 years onwards
Dr. Asma Ibrahim, Director, State Bank of Pakistan Money Museum & Art Gallery


Wednesday, November 1, 2017

Can financial inclusion be synonymous with financial justice and equity?

In IMTFI's PERSPECTIVES blog series, IMTFI’s International Board members and affiliated researchers take on the definition of financial inclusion. This series aims to foster an open dialogue on issues around money, technology, and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events based on their research and areas of expertise. The topic of financial inclusion will conclude with a capstone white paper by IMTFI titled "Mobile Money: The First Decade."

By Stephen C. Rea, IMTFI Assistant Researcher

“In theory, every theory is great, but in practice, not every theory works.”
– Marcel Kitissou, University of Albany

From April 21st to the 22nd, Cornell University’s Institute for African Development and the Cornell International Institute for Food, Agriculture and Development sponsored a symposium titled “Mobile Money, Financial Inclusion, and Development in Africa.” IMTFI researcher Ndunge Kiiti was one of the event’s organizers, and IMTFI was a co-sponsor. The symposium presented an opportunity for academics and development experts to come together and discuss the current state of mobile money in Africa, its effects on the continent’s financial development thus far, and some of the obstacles and tensions that have arisen around financial inclusion. It also afforded a reunion of sorts for a number of IMTFI-affiliated researchers. In this blog post, I will focus on their presentations and the concluding discussion, both of which produced some sobering critiques of financial inclusion as an agenda for international development.

Sibel Kusimba, Rahel Diro, Belete Temesgen
Social and Economic Impact of Mobile Technology panel

Social networks and mobile money in Kenya

I arrived on the 22nd just in time to catch IMTFI researcher Sibel Kusimba’s presentation, titled “Digital Fundraising and Mobile Finance in Kenya,” on the Social and Economic Impact of Mobile Technology panel. Kusimba’s research has time and again reaffirmed an important lesson that often gets lost in the hype about subscription rates and transaction volumes: Mobile money services are most successful when they complement preexisting networks of social obligation. M-Pesa, which has become the “gold standard” for mobile money in its first decade of existence, has succeeded in large part because it operates through a densely intertwined social infrastructure that predates its deployment. However, as Kusimba pointed out,

Kenyan social networks are also variable, with some more persistent over the long term than others. Age, gender, and kinship are all contributing factors to the warp and woof of these networks, as money circulates through matrilineal sibling ties and women often act as arbiters of distribution. But personality and charisma are also crucial elements, especially for becoming a node or “hub” in a social network. Kusimba noted that maintaining one’s status as a hub requires considerable “relational work,” which in turn opens up additional opportunities for more relational work. Moreover, different network ties are useful for different sorts of transactions (e.g. emergency loans vs. money transfer), and so individual nodes in a network are vehicles not only for payments, but also can become small lenders themselves. Kusimba’s research demonstrates how M-Shwari and M-Changa— microcredit and fundraising apps, respectively, that ride on M-Pesa’s rails—afford new means of articulating relational work. M-Changa, which makes it possible for fundraisers to monitor each other’s activities, complements relationships built on trust in these social networks, acting like what IMTFI Director Bill Maurer calls a “distributed ledger” that works in a similar manner to the fact-checking functions in blockchain currencies. (Maurer kicked off IAD's symposium earlier in the week with his talk, “The Problems of Cash and the Perils of Cashlessness: Researching Mobile Money and Payment Infrastructure after M-Pesa" interview can be found here.)

Mobile money uptake in Ghana – one size doesn't fit all

After lunch, an unofficial “IMTFI panel,” titled Mobile Money and Remittances—Lessons in and Beyond Africa, featured IMTFI researchers Vivian Afi Dzokoto and Ishita Ghosh as well as former IMTFI postdoctoral scholar Ivan Small discussing mobile money research in global context. Dzokoto’s presentation, “Mobile Money in Ghana: Past, Present and Future,” raised an important contrast to Kusimba’s research, and in so doing reiterated the reality of “one size doesn’t fit all” that has confounded mobile money service providers. Ghana shares many similarities with Kenya when it comes to GDP PPP, share of the population who are unbanked, and widespread access to mobile phones. However, development experts and mobile network operators alike have lamented mobile money’s relatively slow adoption in Ghana when compared to its East African counterpart. In her talk, Dzokoto highlighted several key differences between Ghana and Kenya that help to explain why mobile money has failed to scale as quickly as some would have hoped. First, differences in immigration patterns: Whereas migration from rural villages to cities and the remittance corridors that followed helped to propel M-Pesa’s adoption in Kenya, these trends did not and do not exist in Ghana to the same degree. Second, the regulatory environment: the Central Bank of Kenya’s early embrace of mobile money and willingness to work with Safaricom and brick-and-mortar banks to create an enabling environment was a fundamental condition of M-Pesa's possibility. Ghana is a good counterexample of what happens when banks see mobile money as competition instead of as an opportunity for collaboration with telcos. The Ghanaian public also has very little trust in mobile network operators, in part because of network outages and infrastructural shortcomings.
Dr. Vivian Dzokoto
Education and outreach have been lacking in Ghana, too, with very few of Dzokoto’s respondents reporting that they knew how to use mobile money or had any sense of why it might be useful for them to do so. Finally, there is the fact that Ghanaians love cash and see little reason to use mobile money when cash is an option. Building on research that she has been involved with for nearly a decade, Dzokoto explained that the cedi’s redenomination in 2007 ended up incentivizing the use of cash and disincentivizing adoption of mobile money; since Ghanaians no longer had to carry around large piles of cash for even basic transactions, one of mobile money’s potential advantages—i.e. a more secure, more convenient mode of value transfer—was essentially obviated. All of these factors have combined to make mobile money an “option of last resort” in Ghana, used primarily for emergencies and remittances rather than day-to-day transactions.


Remittance models in Southeast Asia

Ivan Small’s presentation, “Remittance Technology Models: African Innovations for Southeast Asia?”, considered how the lessons gained from mobile money services in Africa might inform their deployments in Southeast Asia, specifically in Laos and Vietnam. As noted above, remittances and remittance corridors have been instrumental in the adoption of mobile money in places like Kenya. Small argued that the focus on harnessing remittances for development illuminates a few interesting points. First, development discourses have shifted from seeing migration primarily as a negative (e.g. anxieties about “brain drain”) to seeing it as a positive. Moreover, development experts—especially those working in and around financial inclusion—have come to understand internal migration and domestic remittances as potentially more significant than international ones. At the same time, since the early 2000s, anti-money laundering and counter-financing of terrorism initiatives have brought greater regulatory and public attention to remittances, for better and for worse. If remittances are so important to the success or failure of mobile money, then it is imperative to understand the specific contours of remittance practices in a given environment. As Small pointed out, local cultural ecologies and monetary repertoires influence adoption of new services like mobile money and affect financial practices in often unexpected ways. Uptake depends not only on local savings and transfer behaviors, but also on trust in networks, both social and technical; for example, the relative instability and unavailability of electricity in Laos has proven to be a challenge for mobile money. Furthermore, material liquidity continues to be prevalent throughout Southeast Asia because of long histories of conflict and political instability.

Preference for in-person transactions by the urban poor in Uganda and India

In her talk, “Informal Loans and the Mobile Phone: Glimpses into the Coping Strategies of the Urban Poor in Uganda and India,” Ishita Ghosh compared research on lending practices and strategies in East Africa and on the Indian subcontinent. She raised a deceptively simple research question that has profound implications: when the option of using mobile money for securing loans exists, why aren’t people calling upon their distant social networks and instead are maintaining their proximate networks?
The answer, she argued, is because in both Uganda and India there are important symbolic significances entailed by in-person transactions that make them preferable alternatives. Social etiquette matters; asking for a loan through a mediating technology like a mobile phone is difficult for many people because it does not afford the same opportunities to perform self-effacement and gratitude as a face-to-face interaction. Thus, reducing transaction fees for mobile money transfers and making interest-free loans available ultimately do not matter if the underlying social norms that influence financial behavior go unaddressed.

Moving forward – Financial Inclusion or Financial Justice?


The symposium’s final panel, Perspectives, Potentials, and Promises—What Next?, was moderated by IMTFI researcher Ndunge Kiiti, and featured Willene Johnson, former U.S. Executive Director of the African Development Bank; Melita Sawyer from Tufts University’s Fletcher Leadership Program in Financial Inclusion; Lourdes Casanova, Director of the Emerging Markets Institute; and Edward Mabaya, Senior Research Associate in Cornell’s Charles H. Dyson School of Applied Economics and Management. In her opening remarks, Kiiti noted three potential threads to think about moving forward. First, research has made it clear that in order for mobile money to flourish, stakeholders such as telcos, banks, and regulators need to work together, and so figuring out how best to facilitate their alignment will be crucial. Second, when looking at new entrants into the mobile money space like Alibaba’s Alipay, are services like M-Pesa becoming "backwards" before they are even over? In other words, trying to replicate M-Pesa outside of Kenya and simply hoping for the best clearly isn’t working, so what best practices should mobile money providers adopt in order to remain innovative, not to mention effective? Third, we have learned over and over again just how important remittances are not only for mobile money, but more importantly to the financial practices of the unbanked, and so one practical step that must be taken is reducing the price of remitting money, both domestically and transnationally.

A general sense of dissatisfaction with the current direction of financial inclusion pervaded many of the audience’s questions for the panelists. Mabaya offered this pithy reminder for those excited by the promise of so-called “disruptive innovation”: “It’s easy to get carried away by the
technologies, but they’re only as useful as the problems they solve.” The main problems that the panelists and audience members identified were twofold. First, there is clearly a need to develop a framework that can facilitate strategic partnerships among businesses, governments, development agencies, and, of course, the financially excluded. But who is best equipped to take the lead? The consensus was that it depends upon the problem at the time, and that like mobile money, one solution will not work everywhere or for every situation. Everyone agreed, however, that governments need to be more involved in helping to bridge disputes among banks, mobile network operators, and fintech innovators. Government regulators in particular are in the unique position to demand that financial practices be unbundled from the big banks. But at the same time, none of these interest groups can try to dominate the others.

The second problem, which builds upon the first, was well articulated in a comment from the audience: What do banks, insurance companies, and mobile network operators all have in common? They have all been deemed “too big to fail,” and thus enjoy subsidization by governments and aid organizations that allow them access to the poor in the name of “inclusion.” What are the distributional consequences of this? If the point of financial inclusion is making financial services more available, accessible, and affordable for marginalized social groups, can we honestly say that this has been the outcome, or are we simply propping up old vulnerabilities and creating new ones in the process? As Kusimba raised in her talk and the panelists echoed in their remarks, what does finance mean for someone living on less than $2 per day? Can we assume that traditional ways of approaching finance informed by centuries of banking practices are appropriate or even desirable for the financially excluded?

A larger question that grows out of these critiques is whether or not financial inclusion, as presently articulated, can be synonymous with financial justice and equity. And if so, can mobile money contribute to improving financial justice, or will it only perpetuate the same inequalities that many hoped that it would help solve? Over the next few weeks, the IMTFI blog's PERSPECTIVES series will feature reports from a number of conferences where participants have grappled with these same questions.

Photo Credits: Ndunge Kiiti