Using customer-centric data for smarter financial inclusion policies

By Melanie Fairhurst and Isabelle Carboni, insight2impact, featuring AFI member Mynard Mojica, Bangko Sentral ng Pilipinas (BSP)

How can we use financial inclusion data on customers more effectively to bring smart policies to life? insight2impact has been working with AFI’s financial inclusion data (FID) working group to develop a client-centred approach to measure the success of financial inclusion initiatives.

While financial inclusion is typically measured by account uptake rates, researchers at insight2impact believe that this is only the starting point. True financial inclusion comes when financial services are used by people to meet their needs. This means that governments, regulators and financial service providers must assess whether current services and regulations are meeting the needs of their communities, and if not, then to address this with improved services and products that do.

The “FinNeeds” approach is one way to do this. It makes use of demand-side surveys and, where possible, transactional data from financial institutions to assess the usage of financial services, both formal (or digital) and informal, such as borrowing from friends and family. This approach has been piloted with AFI members in the Philippines, Mexico, Nigeria, Kenya and Zimbabwe to draw out new insight on customer usage of different financial services to meet their needs and the outcomes of this usage.

The “FinNeeds” approach can be applied flexibly according to context, including as an additional module in an existing demand-side survey; or fully to gain a deeper understanding of the use cases, the financial devices people choose and the outcome of that usage. Did it meet their need? What are the main use cases for digital financial services? For example, when a customer faces a shock to their finances, such as large medical bills or a loss of income, how did they meet this need? Were they able to recover within a three-month period?

Together, the FID working group and insight2impact developed a toolkit and indicators for AFI members wanting to implement the “FinNeeds” approach in their own context. One of the early adopters of the “FinNeeds” approach was Bangko Sentral ng Pilipinas (BSP), an AFI member that was instrumental in the development of the network and advancing financial inclusion worldwide. Mynard Bryan R. Mojica led the implementation. Here is his story and the findings from the research:

“When the BSP conducted its baseline demand-side survey on financial inclusion in 2015, 17 percent of unbanked Filipino adults indicated ‘lack of need’ as their reason for not having a formal account. It was quite surprising to know that Filipinos do not recognize the need for an account that can be used to save money, send or receive remittances and make payments. We realised that something must be done in the next round of our survey in order to better understand this perceived lack of need for financial services.

It was in 2017 when we first encountered the needs-based approach to financial inclusion measurement. The principle behind it is simple and intuitive – consumers use financial services based on their underlying needs. We saw its potential as a tool to discover why Filipinos answered as not needing financial services. Our hypothesis was that people do have financial needs, but these are not being met by formal finance.

We tested the need-based framework by incorporating a short module in our financial inclusion survey, asking the respondents if they have experienced several scenarios pertaining to meeting a goal, liquidity and resiliency needs. Based on the results, managing liquidity and coping with risks are the top financial needs of Filipino adults; and sadly, borrowing from informal sources such as friends, relatives and loan sharks is the main tool they use to address these needs. Even in situations such as unexpected shocks when insurance could have been useful, Filipinos still rely on informal borrowing. On a positive note, some gains in microfinance are evident, as it is second to informal borrowing as a tool to meet the goal of setting up a small business.

The results suggest that we need to intensify the promotion of financial products, such as microfinance loans and microinsurance, that mimic the qualities of informal mechanisms. The findings also informed our current strategy to increase the adoption of formal accounts by building on compelling use cases such as digital receipt of wages and social benefits as well as payment of utilities and government fees. We hope to increase public awareness that an account can be used not just for saving their hard-earned money but for performing their day-to-day transactions as well.

Financial inclusion surveys have always been designed in such a way that respondents are asked if they have an account and how they use it. This may be the time to revisit this approach and test the needs-based measurement framework by asking first what people’s needs are and then probing how these needs are being met. In this way, we can come up with appropriate financial products and services that respond to the actual needs of the unbanked population.”

About insight2impact

insight2impact is a non-profit resource centre that aims to catalyse the provision and use of data by private and public sector actors to improve financial inclusion through evidence-based, data-driven policies and client-centric product design. It is co-hosted by Cenfri and Finmark Trust and funded by the Bill & Melinda Gates Foundation in partnership with The Mastercard Foundation.