Pieces for pro-poor market acceleration are coming together

CG Meeting, May 13, 2014

2

Key messages

• Our mission has become global development priority

• In-country progress is being made

• Pro-poor market development at scale poised to take off

• CGAP’s priorities aligned to accelerate opportunities

3

Post WWII: Aspiration for universal employment& social protection

“Everyone has right to:

• Standard of living adequate for health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services

• Security in event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control”

UN Declaration of Human Rights, 1948

4

Reality 60+ years later: Half the world remains excluded

~50-60% with

informal jobs

40+%below $2/day

~50% w/out any

social security

coverage

50+%w/out formal

financialaccount

When given opportunity, poor families improve their lives

5Source: Bandiera, Oriana/ Robin Burgess et al. 2013. Can Basic Entrepreneurship Transform the Economic Lives of the Poor. BRAC Working Paper.

Earnings four years after program end(in Taka)

Control group

Graduation program

+ 38%

Series1

6,370

4,616

Survey highlights

• Higher income due to more hours worked, not higher productivity

• Extra income split between consumption and savings

• Poor adopt working patterns of rural middle class

Country embrace of Financial Inclusion as important tool

6Source: Finscope Surveys, Kenya, Rwanda and Uganda. http://www.finscope.co.za/pages/default.aspx

Population served by formal institutions

(in %)

26

41

28 29

21

42

16

57

2006 2009 2006 2009 2008 2012 2009 2013Kenya Uganda Rwanda Tanzania

• Growing importance of non-banking financial institutions

• Some country-specific solutions (e.g., SACCOs in Rwanda)

• In some cases, informal use rising in parallel (e.g. Uganda)

7

2009

2011/12

2013

• G20 embrace of Financial Inclusion as pillar of development agenda

2014

• 50+ countries making national Financial Inclusion commitments

• World Bank aspiration of “universal access transaction services/ accounts” by 2020

• Efforts to integrate financial access as enabler into UN post-2015, MDG successor framework

Strong global political tailwinds

8

Better understood

demand

Viable business models at base

of pyramid

Digital innovation increasing scale and

lowering costs

Supporting national

policies and regulations

Pieces for market acceleration coming together

Importance of understanding demand-side context

9

Game

Advice Relevance

Insights-based approaches: MicroEnsure example

“Life is difficult and everyone has their own

problems.”

Insight: Importance of Everyday Realities

“I play games on my phone and watch Novellas

to relax.”

Insight: Small Pleasures

Insight: Thirst to Learn

“Education is very important. I would like to

see my son live a good life.”

11

Share of domestic depositorsPercent, 2012

Return on equityPercent, 2012

Source: Xac Bank Annual Report, 2012; Khan Bank Annual Report, 2012, MiBanco Annual Report, 2012; Equity Bank Group Annual Report, 2012;l Accleda Bank Financial Highlights, 2012;Bank Supervision Annual Report, 2012, Central Bank of Kenya; Supervision Annual Report, 2012, National Bank of Cambodia; The Mix Market; Global Findex Database, World Bank (2012)

Success of hidden champions in low-income banking

22.3

26

42.9

44.3

18.7

28.8

25.2

31

Replication and acceleration of digital success

12Source: Safaricom M-Pesa timeline on http://nchinampesa.safaricom.co.ke/; Financial Inclusion Tracker Survey and Financial Inclusion Insights, Intermedia; CGAP Team Analysis

Mobile money users in years since inception(users in millions)

• Total reach: 90+% of adults in Kenya (68% for M-PESA only)

• 47% of adults in Tanzania, a competitive market with four providers

• Steep growth potential in Bangladesh – only 9% of adults reached to date

1 2 3 4 5 6 70

2

4

6

8

10

12

14

16

18

M-PesaTanzaniaB-Kash

Potential for rapid scaling of new services

• Banking partner with no previous retail business

• M-Pesa transactions history allows for algorithmic underwriting of small loans

• Many first-time borrowers despite steep cost (7.5% fee per month)

13

12

240

1

45

1 Month 12 Months 1 Month 12 Months

M-Shwari balances (in millions US$)

20x

Savings Loan volumes

Source: Company reports; CGAP teams

45x

14Source: CGAP Teams

Continued proliferation of Digital Finance innovations

Water

Energy

Agriculture

Transportation

Health

Microfinance

Insurance

MOBILE MONEY

15

Pay-as-you-go access to water: Sarvajal example

• “Water ATMs” dispense reverse osmosis-filtered water against pre-paid card charge

• ATMs send SMS to indicate water supply and quality levels for remote monitoring

• 15 ATM pilot launched in October 2013 with Delhi Water Board at very low cost to consumer (0.005 US$/liter)

Source: Company reports; CGAP teams

Public sector actions: India example

Example actions to date

Source: RBI Committee Report on Comprehensive Financial Services; CGAP teams

Financial Access

Promoting infrastructure• UIDAI enrolling 600m

with option to open bank account

Rule making• Agent regulation

expanded on eligibility and non-exclusivity

Driving volume• Digitization of G2P

(NREGA, pensions, fertilizer, food, kerosene, etc.)

16

• New types of banking licenses

- Payment banks (no credit)

- Wholesale banks (no deposits)

• Digital finance-friendly regulations

- Opening up to telcos• Aggressive aspirations

- Leveraging national ID, G2P digitization and opening for non-banks to create basic access for everyone by 2016

2014 RBI Committee recommendations

CGAP V: Recommitment and priorities

20

CGAP’s Mission

Shared Vision

A world where everyone can access and effectively use the financial services they need to improve their lives

To improve the lives of poor people by spurring innovations and advancing knowledge and solutions that promote responsible and inclusive financial markets

Five Year Priorities

Understanding Demand to Effectively Deliver for the Poor

Financial Innovation for Smallholder Families

Developing Robust Provider Ecosystems

Building an Enabling and Protective Policy Environment globally

Promoting Effective and Responsible Funding for Financial Inclusion

18

Re-introducing the Vargas-Hancco family

Helping people improve their lives

19

The Vargas/Hancco Family

Advancing financial inclusion to improve the lives of the poor

www.cgap.org