Financial Inclusion Up Close in Rwanda

You don’t have to spend very long in Rwanda before you start to be impressed by the financial inclusion landscape in this country – not only by the progress made over the past several years, but by the scale of ambition for the rest of this decade and beyond.

The government has set a target of 90 percent financial inclusion by 2020 and the evidence of progress toward this goal is everywhere: Advertisements for mobile-money products are painted and plastered onto almost every available surface and, if you know what to look for, it doesn’t take long to spot an Umurenge Savings and Credit Cooperative (Umurenge SACCO) – Rwanda’s signature financial inclusion initiative.

Six years ago, the 2008 FinScope survey found that that 47 percent of Rwandan adults used some type of financial product or service, but just 21 percent were participating in the formal financial sector, which was at the time made up mostly of banks but which also included a handful of microfinance institutions and SACCOs.

Largely in response to these figures – and in particular to the large urban/rural divide illustrated by the data – and the government set out to establish a SACCO in each of the country’s 416 umurenges, or sectors. The Umurenge SACCO was born.

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7 Considerations for Mobile Money Cash Grants to Change Development


Let us start with the classic (borderline cliché) development proverb: if you give a man a fish, he eats for a day, but if he is taught how to fish, he will eat for a lifetime. It was this analogy that got conversation started at the latest Technology Salon, “Are Mobile Money Cash Transfers the Future of Development?

Development practitioners and researchers alike are becoming more attentive to the demands of the poor and how to best cater to their needs. This means thinking outside the box and arriving at novel strategies that tackle poverty. Cash transfers are one of these innovative approaches. The idea is this: cash provides the poor with direct, in many cases unconditional, injections of money, which gives them the missing finances they needed to jumpstart a business or meet basic needs.

But if we take this classic proverb to heart, we could easily conclude that it’s a bad idea to give the poor cash. Which makes all the recent hype over cash transfers puzzling – isn’t giving cash analogous to giving a single fish? Participants at the Tech Salon didn’t seem to think so. Poverty does not exist because individuals lack fish or because they lack the ability to fish. Rather, poverty comes from a shortage of funds to build fish farms.

Nagging questions:

Could cash transfers, an entirely voluntary, philanthropic and donor-driven approach, be the future of development? What is the evidence that cash transfers are working? How are they positively impacting the lives of the poor? Are there implications of flooding the poor with cash? How do we improve and scale up the idea? And if we can do so, are we at the edge of a paradigm shift in how we do development? These are just a taste of the questions participants tackled during the Tech Salon.


Cash transfers provide entrepreneurial individuals with the missing capital they need to start a business. Instead of being given a fish, they are given something better: a choice to spend an amount as cash as they (not we) best see fit. Many studies show that if you give the poor cash, they don’t in fact spend it on a single “fish”(one day’s needs), they use a portion of the grant to invest in building a “fish farm”(business).


The idea of cash transfers is young and the verdict on effectiveness is still out. In the meantime, we can use preliminary evidence to dismiss some myths:

  • People are not poor because they lack training or entrepreneurship; they are poor because they don’t have the funds needed to start a business.
    In developing countries, financial markets are often broken and individual bank accounts are small. Under these circumstances, it is hard to obtain employment, much less, run your own business. And without any sort of job, income flows will never materialize, regardless of how entrepreneurial the poor individual may be.The issue isn’t that individuals don’t know how to fish (as aid donors often seem to think); rather, it’s that they aren’t given a chance to apply what they know. Cash transfers overcome these hurdles. An unconditional direct transfer sets the business in motion and research shows that once this bump has been crossed, the poor are fully capable of keeping their business up and running.
  • There is no reason for us to expect the poor to waste their cash grants.
    In fact, it is a relief to discover that recipients put their cash grants into savings, investments or meeting of basic needs. Even unemployed, young males in Liberia are seen investing a large chunk of the cash they receive. It is this subtlety that makes cash transfers different from remittances. But so far, the benefits are exclusive to income levels – the effect of cash transfers on socio-economic indicators is unclear. In Uganda, for example, female recipients saw their income double but they reported no change in domestic violence or in the decision-making dynamics in their households.
  • Cash transfers are different from other forms of financial assistance, such as foreign aid.
    Government programs operate on the macro level, giving bilateral assistance or funding towards e.g. specific training programs for a select group of poor individuals. Cash transfers, on the other hand, gets down to the micro-economy, directly transferring money from the hands of the donor into the hands of the poor. The fiscal contract is between a private donor and a needy individual, government aid agencies (the notorious mis-manager of development funds) is left out of the equation. This change in power dynamics has positive effects on the outcome for the poor. For one, it results in greater transparency than foreign aid, as donors can know exactly where their money ends up.What’s more, cash transfers are improving microfinance. M-Pesa, a common form of mobile money used by GiveDirectly, is making microfinance more efficient, as mobile money lowers costs of fiscal transactions by up to 8%.

Challenges ahead:

Despite their allure, cash transfers do not come without serious challenges.

  1. Issue of measuring benefits to the poor
    A growth in an individual’s income is not the same as economic development. In the same vein, it can be tough to measure the overall success of cash transfer programs. Because cash transfers are improving incomes and employment levels of the poor, should the benchmark for success be set at a level of employment? Or a threshold of income? It’s hard to measure success when we are still unsure what the final goal of the cash transfers should be: are we trying to create wealth, foster community development or just improve the livelihood of a single household?
  2. A boost in income is not the same as a surge in wealth
    In development, we tend to focus our attention on methods that accomplish the latter. If our goal is wealth creation, the challenge becomes identifying the wealth creators in societies, the individuals who will give donors the greatest return on their investments. The looming question is sustainability. Even harder, is measuring the developmental impact of the transfer. As long as we lack an adequate benchmark to measure success from, it will be hard to scale up cash transfers. Giving directly may be beneficial for a household now but if the goal is development, we are looking to make a lasting impact, not just doing good for now. We owe it both to the poor and to the donors to assess if the benefits of the transfers exceed the costs of transaction.
  3. Need to understand the nature of the beast.
    Cash transfers come in many shapes and size; it is hard to pick which type of transfer should be the preferred default method and when one type should be used over another.  At the Tech Salon, we addressed conditionality. Unconditional transfers allow for greater flexibility as we place trust in the poor’s decision making. Conditional transfers, on the flipside, could give a sense of security to the investors. On that note, it’s unclear if a lump sum is more effective than a stream of payments. A one-time transfer of cash would give an immediate boost, enough money necessary to get a business up and running. On the other hand, a stream of payments allows more budgeting flexibility, as these expand the individual’s opportunity to save and invest.
  4. The context of the transfer matters:
    $200 in Haiti has different purchasing power than the same $200 grant in Ethiopia. We cannot expect Haitians and Ethiopians to spend $200 in similar ways. How do we tailor cash transfers accordingly? And how do we decide which recipients to target? Is it better to give to women, who have seen some of the greatest benefits from the grants? Or do we give to youth, who, with their entire lives ahead of them, could give the donor the biggest return on investment? How do we ensure we invest in the wealth creators if we do not know how to find them?

What’s next?:

Hype and challenges aside, are cash transfers *the* future of development? Not necessarily. At Tech Salon, we acknowledged that as long as countries face institutional problems, cash transfers would not do much to change the wealth of the nation. Developing countries face financial barriers that can’t be solved with an injection of cash. In Liberia and Haiti, no lump of cash will change the bureaucratic, messy business environment. Also, problems of poor management and corruption remain unaddressed. If we hope to improve cash transfer programs, we need to address these problems and specific goals that can be targeted.

Maria Andersen is a M.A. Candidate at Johns Hopkins University (SAIS)

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Seeking Effective Policies to Promote Financial Inclusion

The 2014 Global Financial Development Report, released today by the World Bank Group, presents the most comprehensive review to date of research findings on an increasingly prominent issue in international economic policy: financial inclusion. It also highlights several key topics that are linked to the growing interest in this topic – advances in technology, product design innovations and the role of financial education in financial inclusion.

It’s easy to understand the focus on technology in this kind of report. Mobile phones and other telecommunications and digital technologies offer potential opportunities for the cost-effective expansion of financial services into previously overlooked or under-served markets. Technology is only part of the reason, however, for increased attention to financial inclusion. There is also a new appreciation for the role of financial services in the lives of the poor – an appreciation gained through a pioneering research effort using “financial diaries” methodology. This includes an awareness that even the best supply-side responses – often powered by new technologies – need to understand the demand side of the equation to be commercially successful and to offer value to consumers.

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Short film: Uganda’s love of mobile money

In just over four years, 9 million Ugandans have jumped aboard the mobile money bandwagon– buying, selling and saving with their mobile devices.

With the World Bank targeting universal financial access by 2020, the rapid embrace of mobile banking in places like Uganda provides a promising outlook for reaching the 2 billion people around the world still excluded from financial services.

To see how mobile money is changing Uganda, check out this short film from Swedish telecommunications giant Ericsson. The two-and-a-half-minute clip, from the company’s Technology for Good blog, highlights the impact that mobile money is having on the lives of farmers, small business owners, and other Ugandans, and is an excerpt from Ericsson’s longer film, “On the Money.” The video starts with a staccato scene of mobile money logos, and slowly builds to a crescendo as Vincent Kiyingi of Pride Microfinance narrates the story of cell phone banking in Uganda.

Watch the 2 minute 42 second video:

Mobile Money vendors are popping up all over Uganda in droves. Image: Ericsson–Technology for Good Blog.

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Microfinance in Africa

‘Microfinance’ today is a broad-reaching concept that has grown and matured in a multitude of ways since being first pioneered. MicroLoan Foundation fits very much at the social end of the microfinance spectrum; while we aim to deliver our services in an efficient, professional manner, our mission is ultimately the reduction of poverty in disadvantaged communities and countries.

MicroLoan Foundation has been making small loans, accompanied by business training, for more than ten years now, and for a number of reasons, we have only ever targeted these services to women:

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Econ 101: Three different ways to lift girls out of poverty

New projects that teach young women how to start a business, hold a bank account, and apply for financial aid can help to give them better futures and avoid the hallmarks of poverty — poor health care, forced marriage, and early childbirth.

And Kathy Calvin, CEO of the United Nations Foundation, says that helping girls out of poverty will have a ripple effect that extends to fighting poverty for more than just themselves.

“Girls are one of the most potent weapons against poverty. A healthy, educated, empowered adolescent girl has the unique potential to break the cycle of poverty for herself, her family and her country.”

Aid organizations have found that giving girls basic financial skills helps them to escape poverty. Simply learning about personal finance — saving money, pricing goods — gives young women knowledge that can help them build a more secure and independent life.

But aid programs come in many different shapes and sizes. Here are three that take different routes to helping girls rise out of poverty and into independent, fulfilling lives, while also stoking the fire of economic growth.

Wedu works with adolescent girls from low-income countries in Southeast Asia to ensure that they enter college with the skill sets necessary to succeed. The organization, started by two recent graduates of the London School of Economics, helps students understand financial aid. It also encourages people to donate, then take an active role in mentoring and selecting students. Students receive microfinancing instead of scholarships, making the donor-student relationship more like an investment, where graduates repay their loans from a percentage of their incomes for 10 years and help to fund expansion of the program. Meanwhile, donors have a stake in helping those they selected for the program to succeed.

In Gap’s Personal Advancement and Career Enhancement (P.A.C.E.) program, female employees of the garment industry in Bangladesh, Cambodia, China, India, Indonesia, Sri Lanka, and Vietnam receive training to advance their potential in the workplace. The training includes financial literacy, problem solving and gender equality, as well as technical training in their home factories. The women who complete the program are more inclined to save money, according to the International Center for Research on Women, who report a 70 percent increase in regular savings by women who completed the program in India. Participants also open more bank accounts, and start more of their own businesses. Even more encouraging, graduates are more likely to mentor their peers and five times more likely to receive promotions at work. More than 17,000 women have received the training so far.

SEWA  Bharat’s vocational school in Delhi targets girls from poor neighborhoods nearby, many who have dropped out of traditional schooling to help their families at home. The program readies girls to participate in the formal economy with financial education in accounting, computer applications and banking. SEWA Bharat, a federation founded in 1972 to support and protect poor, self-employed women in India’s informal economy, also assists the girls with job placement and helps new entrepreneurs get their nascent businesses established in the market.

Adolescent girls may be the next key to fighting poverty, according to the Girl Declaration, which launched last week and calls for a focus on girls in the post-Millenium Development Goals era.

“We have listened to the voices of girls and now we are asking leaders in every country around the world to do the same.” says one of the declaration’s coordinators, Maria Eitel, CEO of the Nike Foundation. “The girl declaration is based on overwhelming evidence—that girls not only face appalling discrimination in much of the world, but they are also the most powerful potential drivers of change in their families, communities and countries.”

Learning basic financial skills can help girls into more independent, fulfilling lives. Photo: Leah Hazard/Mercy Corps.

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