by Kim Wilson, CEME Senior Fellow & Lecturer, The Fletcher School
Predictably, the long tentacles of financial inclusion have coiled themselves around the most vulnerable targets of humanitarian aid: low income refugees, migrants and displaced populations (hereon: “refugees”).
Just as predictably, the financial inclusion agenda is driven by suppliers (aid providers, donors, financial intermediaries and governments). Few refugees are demanding to be included in a digital/formal ecosystem. That does not mean they don’t appreciate the shelter, food and cash that humanitarian agencies have mustered on their behalf. They do. They also appreciate the efforts of those same agencies to make cash assistance easier. E-cash that can be transformed into physical cash at convenient times and places is an example. Use of debit cards at ATMs to withdraw cash from digital accounts can cut valuable time otherwise spent waiting in long cash distribution queues. Very appreciated, indeed.
by Ignacio Mas, CEME Senior Fellow & Academic Director for the Certificate in Digital Money
Our brains are imperfect calculating machines: who could argue otherwise? There are cognitive biases galore: I get that. So psychology matters: sure.
But I have always had a hard time with run-of-the-mill behavioral economics, which portrays these cognitive biases as deviations from the straight path, as disturbances from some kind of ideal rationality that people need to be somehow brought back (or nudged) towards. Through trickery, if necessary: framing, setting defaults, etc. Your psychology is your problem; we can save you from yourself. If only one could find the mental switch that finally makes you want to care appropriately about the future and save…
The behavioral economics industry is having a field day with financial inclusion, and development more broadly. It comes down to this: how can we help poor people be and act more like us, or at least more like the person we wish we were? This smacks of the kind of paternalism that development economists have always had a hard time escaping. But before rejecting this approach, we need to understand two things: whether it is the case that poor informally employed people are often less rational, and if so, whether this makes them more vulnerable to their own psychology.
India’s Botched War on Cash
[In the wake of demonetization], retail and wholesale markets have stalled around the country. Supply chain transactions, real estate deals, and even weddings and funerals have been frozen. Consumers are coping with lines that are frustrating even for Indians used to standing in lines or waiting for basic services. People up and down the income spectrum are dealing with changing cash withdrawal policies and empty ATMs. The nation’s status as the world’s fastest-growing big economy has been severely imperiled and its currency risks being further devalued, a situation made worse by prospects of a strengthening dollar after the U.S. election.
Sounds bad, right? But there is a question that hasn’t been asked: Is there a digital upside to this crisis?
Read the full piece from Dean Chakravorti in the Harvard Business Review
by Diwakar Jhurani (MALD 2017)
My winter research opportunity took me to New Delhi. The task at hand? Analyze the socioeconomic impact of four specific proposals for financial inclusion and entrepreneurial development of street vendors in India:
- access to bank credit
- leveraging existing general insurance schemes
- business literacy for vendors
- linkage to digital businesses.
A law passed by the Indian parliament called the Law for Regulation and Livelihood Protection of Street Vendors in 2014, and served as a trigger point for this research. The purpose of my visit was to seek input and obtain data from key stakeholders. I chose New Delhi due to the sheer number of street vendors and agencies associated with their management and advocacy.
My first trip was to the heart of Delhi, Connaught Place. Before I could successfully study street vending, first I had to become a consumer. The sheer cost effectiveness and convenience that these vendors bring to life makes them outstanding. Interestingly, I spotted as many women as men trying to sell their products. Connaught Place is considered one of the upscale markets in Delhi and to see a mix of neon lights, pubs, and street vendors, all catering to the same section of consumers, was a unique sight.
by Ignacio Mas & Kim Wilson, CEME Senior Fellows
Money is a complex human convention with deep cultural derivations and an elaborate social etiquette. It is part of the fabric of bonds within family and community. It is also mired in psychological biases and mental heuristics through which we personally come to terms with the barrage of decisions we need to make on a frequent basis.
Given this contextual cocktail, it is not surprising that behaviors around money often appear irrational on first analysis. However, there is always some hidden logic that explains, without necessarily justifying, most observed behaviors. (Critical distinction here: you can explain why a thief took something, but that doesn´t necessarily justify it.) These behavioral idiosyncrasies operate in the background and we easily identify them in others, but we rarely confront them in our own lives.
In our courses on digital money and financial inclusion, we find that getting students to think about their own idiosyncrasies around money is the best antidote against developing excessively judgmental attitudes in interpreting how others, and especially poor people, manage their money. In the Fletcher School´s Leadership Program for Financial Inclusion aimed at financial regulators and the DFI-Fletcher Certificate in Digital Money aimed at emerging market fintech professionals, we ask our students to tell us an interesting story from their own lives or those close to them that has to do with money, which made them look at money in a special or different light. We thought we’d show you the kind of stories that come up.
There are twice as many mobile phone subscribers as bank accounts in Indonesia. Last year, smartphone audience growth in India was almost 80% – the largest in the world. In Kenya, cellular phones have long been a hub for banking transactions. Cell phones as banking access points offer an unparalleled opportunity to improve the livelihood of millions through mobile financial services. Can mobile phones lead the un-banked out of poverty?
Learn more about Fletcher perspectives on mobile banking:
As part of our “10 Questions” Series, we delve into hard questions of international business not easily answered by a single book, class, discipline, or school of thought. They herald a future where the world and the world of business are ever more interconnected, where decisions can’t be made in a bubble, where real expertise demands deep ‘contextual intelligence.’ This series reflects that contextual intelligence we cultivate in our students in the MIB program.
by Brenda Santoro and Ahmed Dermish
with the support of Kim Wilson, CEME Senior Fellow
In uncertain times do developed economies have the resiliency in their financial inclusion processes to withstand rapid change without risking systemic stability and consumer protection?
Modern, nationally integrated systems, high-capacity supervision, and flexible policymaking are helping Germany turn the refugee crisis into an economic opportunity.
The German Federal Financial Supervisory Authority, commonly known as BAFIN, this fall relaxed requirements for opening a bank account. The new rules allow accounts to be opened with a stamped document from an appropriate German authority, such as BAFIN, along with a picture and personal information. Transitional rules are in effect until the approval of the law, expected this year. A directive in the European Union, which will begin in September 2016, will require similar access to bank accounts across the EU.
by Ignacio Mas & Kim Wilson
Most of us in the digital financial services space have had to learn about digital payments and digital financial services on the job. While there are business school courses in banking and supermarket distribution networks, they don’t prepare you for a career in building the basic 21st century infrastructure of Digital Money. Digital money is our term for any transaction that securely enables the sending, receiving, storing, or tracing of money on digital networks.
As a result, the increasing number of companies building out teams in the emerging Digital Financial Services space face severe capacity bottlenecks, especially in developing countries. Their employees may come to develop deep operational expertise in the specific aspect of the industry they are involved in, but often lack a broader perspective of industry trends and issues, and remain unaware of alternative models that exist elsewhere.
In order to address this, the Digital Frontiers Institute (DFI), which was recently co-founded by David Porteous, Gavin Krugel and Ignacio Mas, is partnering with the Fletcher School to create the first university-certified course in Digital Money. This is an intensive, 12-week online course, and it will be offered for the first time this February, in English (see the course brochure).
by Kim Wilson, CEME Senior Fellow
In the olden days, awards were not given for innovation itself but for how effective an innovation was in relation to the importance of the problem it solved. But what we see today in financial inclusion is the ubiquity of innovation – often front and center – as the lead determinant in a plethora of prize competitions. Check the first judging criteria of this prestigious contest.
Why would the entity commissioning the award, The Wall Street Journal, care about how innovative or unique the business was or how it broke from tradition? Wouldn’t it care most about how well the service solved a problem and the problem’s significance?
Read the entire post at Accion’s Center for Financial Inclusion Blog
Over half of the world’s population lives in cities. Making cities work is one of the great imperatives of our time. At Fletcher’s Institute for Business in the Global Context we aim to provide a platform to help bring urban innovators and entrepreneurs to the forefront of the conversation through research and conferences, such as our Inclusive City Forum and Inclusion, Inc. Forum.