A PHL strategy on financial inclusion: More on the means than reversing mindsets?

This post is the first in a series by IMTFI Researchers Jeremaiah M. Opiniano and Alvin P. Ang. Stay tuned for future posts about financial inclusion and savings behaviors in the Philippines. 

Guiguinto Hometown Conference banner (Photo by Anna Jesuza Louise Estrada)

This July 1st, the Philippines’ Central Bank (Bangko Sentral ng Pilipinas) will launch its National Strategy for Financial Inclusion (NSFI). The forthcoming policy framework, to be collectively signed by 13 national government agencies, represents the Philippines’ efforts at bolstering the creation of a savings habit (CASH), and letting as many Filipinos as possible—especially the poor—be included in the formal financial system.

In essence, the NSFI envisions this for Philippine financial inclusion: “A state wherein there is effective access to a wide range of financial products and services by all.”

The NSFI formalizes the policy showcase of the Philippines as one of the more accommodating countries for financial inclusion; it ranks first in Asia and third worldwide according to a 2014 survey of The Economic Intelligence Unit (EIU). Admittedly, however, the archipelagic nature of the Philippines physically challenges efforts at financial inclusion; of some 1,300-plus municipalities nationwide, around 36% do not have a banking office, leaving roughly 15% of the Philippine population unbanked.

Citing recent data from the World Bank, covering the years 2010 to 2014 (the sunshine period of the Philippine economy that continues to this day), the Philippines’ five-year gross domestic savings rate is 15.6%, lower than the rates in neighboring Southeast Asian countries. Not even recent years of macro-economic growth for the country, a situation the Philippines long dreamed of having, have pushed people to improve their savings habits.

Some data on the Philippines from the World Bank’s Global Financial Inclusion Index (Findex) further illustrate these concerns. The Findex is a worldwide survey of over 150,000 people asking questions related to financial inclusion, from saving, to borrowing, to opening bank accounts. Some 1,000 Filipinos were surveyed in the Findex's two survey rounds in 2011 and 2014. A source of good news is that the number of adults aged 15 and above with accounts at formal financial institutions increased to 31.3% in 2014 from 26.6% three years before. There was also an increase in account-bearing Filipinos who are living in rural areas, from 19.5% to 27.5%.

But the number of Filipinos over 15 years old who saved at a formal financial institution increased only negligibly, from 14.7% in 2011 to 14.8% in 2014. This is baffling since Filipinos who “saved any money,” be it kept on their own or placed in financial institutions, rose to 67.3% in 2014 from 45.5% in 2011, according to the Findex survey data. And the past decade has seen the resurgence of a lot of financial literacy seminars, books, and training events.

Preliminary survey findings from our research project in the Philippines using a tool called the Remittance Investment Climate Analysis in Rural Hometowns (RICART), even if done only in a solitary municipality (Guiguinto), affirm national-level observations. Guiguinto, found in Bulacan province (an hour outside of Manila), is still outside of the ambit of cities, even if the town’s first-class income status makes it look like a city already. But not even the presence of some four commercial banks, two rural banks, a thrift or savings bank, and some five cooperatives have pushed many people to save.

Members of the Overseas Filipino Workers Family Circle of Guiguinto 

answer a financial temperament test developed by Dr. Alvin P. Ang 

(Photo by Anna Jesuza Louise Estrada)

In the RICART survey (n=227 respondents, broken down into 118 migrant families, 36 overseas
migrants, and 73 non-migrant families), the number of people bitten by the savings bug had not even reached half. Only 41.3% of migrant families, 44.4% of migrant remitters, and 26% of non-migrant families in Guiguinto have savings accounts in formal financial institutions.

When asked why, some residents (especially migrant families) cited familiar reasons: their incomes were “not enough” for daily needs, they had accumulating and cyclical debts (the latter covering borrowing money to pay off a current debt), among others. The RICART survey in Guiguinto showed that people “know” about financial management and “do not need any help” in relation to handling money, but these qualities are not reflected in their practices. Most of the surveyed respondents do not  record their expenses, although they are aware of the money that they have coming in. Most respondents answered that unspent money from previous paychecks is spent on daily needs. And for many respondents, when the household is drained of cash, it’s time to borrow.

RICART analyses had been done in previous years in three other municipalities across the Philippines. Including the current round in Guiguinto, supported by the Institute for Money, Technology and Financial Inclusion (IMTFI) of the University of California, Irvine, the story is the same: local and overseas-based income earners and remittance-possessing households claim to “know” finance, but their practices contradict what they’re supposed to do given what they “know.”

Yes, municipal-level results of previous and current RICART surveys are not generalizable nationally (previous RICART studies were done in Magarao, Camarines Sur; Maribojoc, Bohol; and Pandi, Bulacan). Still, these attempts give a good snapshot of the environment for savings and investment, at least by rural folks. If RICART will be done in other places, the answer to the money handling question may remain the same: people “know,” but practices do not align with what "should" be done.

Financial education and consumer protection is the second pillar of the NSFI. The mechanics of advocating financial education are things financial inclusion stakeholders know already, like budgeting sheets, or answering risk profile questionnaires, or even giving out piggy banks (known as alkansya in the Philippines). Financial literacy messages have now penetrated social media.

But with the delivery of these approaches to improving people’s financial management skills comes a certain tone, which may have to hit the mindset of Filipinos. One may know about budgeting, but if the Filipino mindset is still to spend when there’s plenty (or even when there’s little), will behavioral change happen?

Financial inclusion is a behavioral economics issue, and, more importantly, a cultural challenge. Communicating clear messages that strike a chord with the Filipino’s money mindset may have to be the next step in improving the state of Filipinos’ access and usage of money and financial services.

RICART in Guiguinto was made possible with the help of research assistants Andrew Lacsina, Anna Jesuza Lourisse Estrada, and Jumaine Christene Doctolero, graduates of the University of Santo Tomas.

The Impact of Pure Mobile Micro-financing on the Poor: Kenya’s Musoni Experience

Photo taken from the Musoni website (musoni.eu).

In a case study of Kenya's relatively new "Musoni" service for IMTFI's Working Paper Series, Tonny Omwansa and Timothy Waema investigate how micro-finance institutions (MFIs) are increasingly turning to cashless approaches such as mobile money to better serve BoP (bottom of the pyramid) clients. Musoni exclusively uses mobile money in provisioning micro-finance, thereby eliminating some administrative costs and making transactions more efficient for its clients. Omwansa and Waema find that Musoni's clients come to appreciate the range of financial products that the MFI offers more when they are bundled with mobile money, and furthermore that mobile money helps demonstrate the value of using the electronic channel for their financial activities. Moreover, they observe that Musoni clients increase their savings activities as a result of using mobile money. Despite these promising developments for financial inclusion, the authors conclude that mobile money can never fully replace cash, and that Kenya's poor need some combination of the two because they each fulfill different, important roles in their financial lives.

To learn more, read Tonny Omwansa and Timothy Waema's Executive Summary and Working Paper. 

Collecting the present: Partnering with researchers to document new developments in money

By Ellen Feingold, Curator of the National Numismatic Collection
Cross-post from the Smithsonian Blog

My collecting station at the IMTFI conference in December 2014

When considering the origins of objects in a museum’s collection, one might initially think of donations from private collectors, national institutions, and famous organizations. Ellen Feingold is the curator of the National Numismatic Collection—the national money collection—housed at the Smithsonian’s National Museum of American History. She explains why she works with researchers from a variety of fields to help the museum document what is happening in money around the world.

As the curator of the National Numismatic Collection, one of my responsibilities is to select objects to acquire that enhance the collection. This effort is not aimed at increasing the collection’s size—at approximately 1.6 million objects, it is already believed to be the largest in the world. Instead, the purpose is to find objects that capture moments in the past as well as what is happening in the present, preserving this period in history for curators, museum visitors, and future researchers. This is a tall order. There are nearly two hundred nations in the world, and most of them issue their own currencies. Dollars, drams, dongs, and dirham are minted and printed across the globe every day. Banks and shops issue a variety of credit and gift cards. And new digital technologies, such as the cryptocurrency Bitcoin, emerge annually. Moreover, there are many different points of view about which objects can be considered money or could be relevant to the story of money, such as receipts. It is not possible, or indeed practical, to capture all that is new in money each year. So how should I decide what things to collect to reflect money today, and where do I find them?

Researchers outside the museum who explore the creation and use of new monetary technologies make ideal collectors. They are not only on the ground and able to acquire innovative payment artifacts, they also document the objects' uses as well as social and symbolic meanings. The Institute for Money, Technology & Financial Inclusion (IMTFI) at the University of California, Irvine is funding research on how new technologies of money are impacting the world’s poorest communities. This geographically diverse community of researchers works on a vibrant range of topics, such as how a rural community in Ghana considers their ancestors' beliefs when making decisions about the use of mobile money technology, the role of television comedy in increasing financial literacy in Cambodia, and the relationship between mobile money technologies and food production in rural Potosi, Bolivia. (To learn more about this year's conference, see this post on IMTFI's blog.)

Each year, the IMTFI's researchers travel from their fieldwork sites to Irvine, California, to meet at an annual conference and discuss their projects. In 2014, I asked the researchers to consider collecting objects to donate to the National Numismatic Collection and bring them to the conference. IMTFI researchers have generously donated objects to museum collections before, and in 2014 they gave 35 objects to the Smithsonian. These objects demonstrate the variety of physical and digital currencies and payment systems in use around the world today.

Read more here. 

June 29 Event at CGAP: Doing Digital Finance Right: Achieving Stronger Customer Risk Mitigation in Digital Financial Services

Digital finance in Bangladesh (Photo by Mohammad Akhlas Uddin, 2014 CGAP Photo Contest)

Digital delivery of financial services will undoubtedly play a central role in bridging the financial inclusion gap. But along with the potential benefits – easier access, lower costs, product diversification beyond simple money transfer and payment services – come risks such as opaque terms and conditions, and agent misconduct or fraud that can harm customers and reduce their trust and usage of the new services. Better understanding and managing these risks can help advance customer well-being, provider success, and financial inclusion progress.

CGAP’s Protecting Customers initiative launched a Focus Note, “Doing Digital Finance Right: The Case for Stronger Mitigation of Customer Risks,” presenting new research on responsible digital finance. The paper explores consumer risks in digital finance – particularly through the lens of lower-income and less-experienced consumers – by asking three related questions:

 1. What risks do consumers and customers perceive and experience when using digital financial services?
 2. What are the consequences of those risks for consumers, providers, and financial inclusion?
 3. How can those risks be addressed?

You can join CGAP on June 29th in person or online for a half-day public event in Washington, D.C. to learn more about the risks consumers face, why they matter, and promising solutions to tackle these risks and achieve increasing trust, uptake, and usage of digital financial services.

For more information on the event and to register please visit cgap.org.

Read CGAP's press release, "CGAP Report Analyzes Digital Finance Risks for Customers."

Unemployed Ugandan Youth Gravitate to Sports Betting

By IMTFI Researchers Bruno Yawe and Kizito Ssengooba

Billboard of a betting shop in Kampala (Photo by authors)   

Sports betting can be described as the activity of predicting sports results and placing a wager on the outcome which may result into a loss or a win. About 62% of Uganda’s youth are not in any form of employment and the majority of them live in urban centers (ActionAid International Uganda, Development Research and Training and Uganda National NGO Forum, 2012).The growth of the internet and mobile devices with quick access to odds has made betting much more accessible.

In particular, sports betting has spread among Ugandan youth like wildfire. Several sports betting companies have recently set up shop in urban and semi-urban areas around the country. Unemployed young people gather at these betting parlors to gamble on things like televised soccer matches. On the weekends, hundreds of sports betting outlets are filled with young gamblers, most of them without any regular income. At the betting parlors in Kampala and its neighborhoods, young men watch soccer matches on flat-screen TVs. Every day, betting companies put a lineup of games for the public to bet on. For every game, there is a team of analysts who analyze the strength and prospects of each team. The stronger the team is, the higher the likelihood of a win but the lower the odds and return. The average bet size is about US$ 0.5. With this information, a prospective wager will place bets and wait for the results. Many unemployed youth are being lured into predicting sports results and placing bets by popular FM radio stations. Youth in the Wakiso and Kampala districts have embraced sports betting for survival because they have no jobs and see this as an opportunity to make some quick money. Majority of the youth interviewed said “I would rather try my luck with betting UGX 1,000 (US$ 0.5) and hope to win and meet my pressing needs than living without any hope at all.” Some say it is a good source of income, but others are not so sure.

Youth viewing match fixtures (Photo by authors)   

Lucrative, Legal Lure
The business of sports betting is give and take. For example, if everybody should bet on Barcelona today and Barcelona loses, betting shops benefit. Conversely, if everybody should bet on Barcelona today and Barcelona wins, betting shops lose while the customers benefit. Betting shops hire young people to work at their branches around the country, thereby creating hundreds of jobs. Although these sports betting operations are legal in Uganda they are not adequately regulated by the government. Before January 2014, there were no clear laws or guidelines to govern gambling in the country. Because of this lack of laws, some companies refused to pay up when somebody won a bet.

Deep Concerns
With the increasing presence of betting shops, some officials charged with youth welfare are very excited and are in agreement with their operation in the country. They argue that they will help to promote the government’s poverty reduction strategy by providing some employment opportunities to the youth. They claim that as more sports betting shops are licensed, more employment opportunities are created in the country. But not everyone agrees that this is a positive thing. Gambling is bad for Ugandan society. This is because the majority of youth are no longer going to school nor seeking gainful employment. They spend the entire day at the betting parlors. Some say the expansion of legal sports betting is fueling vices like the use of tuition fees for betting (among in-school youth); theft and cheating; more illegal street gambling; and sapping young people's motivation for finding jobs.

But back at the betting parlors unemployed youth say that they do not have much choice. They argue that there is no adequate social protection to shield them from the adverse effects of joblessness. They are not betting because they want to bet. Rather they are betting because they want to make a living. Gambling in general and sports betting in particular is growing rapidly, and Ugandan society is sitting on top of a gambling problem time-bomb. Gambling and betting represent new drivers of chronic poverty among Uganda’s youth. Many youth are abandoning participation in productive activities in favor of gambling, especially sports betting. This has emerged as both a rural and urban phenomenon and has increased idleness, diverting would-be productive resources in the hope of winning bets.  There is need for proper regulation of the gambling industry and more sensitization on the dangers of this practice. To address the adverse effects of gambling, Gamble Aware Uganda provides support, information, and advice to anyone suffering from gambling problems. The high unemployment rate among Uganda’s youth poses a serious threat to the country’s well-being.  The unemployed youth are likely to become a source of instability if the government does not plan for them early enough. There is need for urgent intervention to plan for the idle youth population who are likely to become a problem to the country’s security.

Read more in Bruno Yawe and Kizito Ssengooba's Final Report. 

Click here to listen to a radio program on sports betting on Uganda Radio Network in which Bruno Yawe was a participant. The program took place on 10th January 2014 at Makerere University. 

Women and Mobile Money in Côte d'Ivoire

By IMTFI Researchers Kone Nara Kanigui Idriss and Wahabou Ibrah Mountaka

Since 2008, the introduction of mobile money has revolutionized money transfer in Côte d’Ivoire, driven by the major service providers that include mobile network operators Orange, MTN, and Moov. Today the country is one of the fastest growing digital finance markets in the world with more than six million registered mobile money service customers as of  2013. Our project aimed to determine how women's participation contributes to mobile money's success in Côte d'Ivoire.

Women at the "Gouro" market (Photo credit: ENSEA)

Location:
Field research, including surveys and focus group discussions, was carried out in the “Gouro” market, a well-known place at the heart of the commercial market of Adjamé in Abidjan, Côte d'Ivoire's economic capital. The market was created by Gouro women, an ethnic group from the western region of Côte d’Ivoire with large plantain, cassava, tomato, and spice farms. Today, women foodstuff vendors at the Gouro market represent a microcosm of Ivorian women, including the various ethnic groups, different economic statuses, and education levels, etc.

Results:
477 women were surveyed, and thirty-six others participated in focus group discussions. Our results are as follow:

High awareness of mobile money. More than 85% of respondents with a mobile phone knew about the existence of mobile money services, mainly through the members of their entourage (parents, friends and colleagues) and via television.

Low adoption of mobile money. More than half of the respondents reported that they use mobile money services. However, less than one-third (32.075%) have their own mobile money account (MMA).

Recent experience in using mobile money services. As for how long they had been using their MMAs, 41.17% had been using them between one and two years, followed by those who had used accounts for less than six months (35.29%).

Semi-wholesaler, 50 year old animist, no education, married

Education level and perceived ease of use make a difference in the decision to open a mobile money account. The women’s probability of having a MMA is four times greater when they have a primary school education level, and fourteen times greater if they attended secondary school. Women who perceived difficulties in using mobile money services are around nine times less likely to have a MMA when compared to women who perceive mobile money services as easy to use.

Perceived ease of use depends on the ability to understand the mobile money platform and code-inputting processes. Most participants considered deposit and transfer operations easy to process since they didn’t require the use of the customer’s phone, in contrast with operations like withdrawal and airtime-purchasing which require entering a code and interacting with the mobile money platform via mobile phone.

Wholesaler, 35 years old, animist, no education, married.

Constraints related to time and cash have been revealed as the primary disincentive factors of mobile money adoption. Firstly, most of the unbanked participants didn’t find any interest in bank services because of their intensive use of money, and reported not having enough time to manage a bank account given their sales activities. Similarly, discussants with no MMA reported that they were too busy to manage one. Long queues at mobile money agencies and the related loss of time were interpreted as risks, namely of losing money and customers for the women foodstuff vendors. Therefore, mobile money processes appeared inconvenient with the requirements of sales activities. Furthermore, the important need for transactional cash resulting from foodstuff sales activities remains a barrier to the creation of a MMA.

Recommendations:
We have been able to extract some lessons relevant for achieving universal adoption of mobile money by women in Côte d’Ivoire. Mobile money operators need to design new strategies towards women with none or very low education in order to change women’s perceptions about mobile money and present these services as less risky, more useful, and easier to use. They also should improve affordability and convenience that could remove risk aversion related to using mobile money services. Three tasks in particular must be done, according to respondents' most frequent suggestions:

• Improve mobile network  reliability

“I want my clients to receive their money without problems, so they have to resolve network problems.”
Wholesaler, 59 years old, Christian, no education, widow

• Design illiterate-oriented code entry process 

“Let them change the way to input codes.”
Semi-wholesaler, 37 years old, animist, no education, married

• Increase the density of mobile money agents around and within market

“They have to put mobile money agents everywhere in the market so that we don’t have to move and we can gain time.”
Wholesaler, 46 years old, Muslim, primary school education, married

We hope that all of these efforts will contribute to making mobile money more transformational by bringing financial services to the largely unbanked population of women in Côte d’Ivoire.

Click here for the final report.

New Publication on Mobile Financial Services in Latin America & the Caribbean

Cross-post from GSMA blog (with special section on Ecuador and infographic)
Click here.
By Mireya Almazan

Ecuador has implemented an innovative approach to
financial inclusion.

"Today, the GSMA is releasing a new publication on mobile financial services in Latin America and the Caribbean (LAC), which provides a snapshot of the current state of mobile financial services in LAC, analyses the commercial models being employed in different market segments, and discusses the regulatory evolution that has helped shape the industry....

Click here to see the colorful infographic.

Ecuador - "In Ecuador, the central government is the only issuer of e-money, as established by a legal framework issued in 2014.[6] Ecuador has thus opted for a policy approach to mobile
money instead of a commercial approach. These efforts are in early stages and will be studied by industry stakeholders for years to come....

The New Financial Architecture and the Public Mobile Money System in Ecuador

Research results from IMTFI Researcher Javier Félix

Current Ecuadorian President Rafael Correa’s broader political program called the “Citizens’ Revolution,” has prompted a restructuring process of its domestic financial architecture through a combination of legal reforms, new public policies, and the transformation of the national payments system. As part of this endeavor, a new mobile money system is being introduced to diversify the available forms of payment.The mobile money system will be executed and administered by the Central Bank of Ecuador (BCE), making it the first ever publicly mandated and Central Bank-administrated mobile payments scheme to be implemented in the world. 

To learn more, read Javier Félix's Executive Summary and White Paper (in Spanish).

The Structure of the Mobile Money System (Source: Central Bank of Ecuador, 2014)