An Information-Based Approach to Financial Inclusion

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For my Master’s thesis at The Fletcher School, I attempted to outline a framework for information-based approach to development, a term that I credit to my professor at the time, Kim Wilson.  The framework is definitely related to the much more famous ICT4D concept, but it emphasizes that people are empowered by multi-directional flows of information, not by technology.  The key components are:

  1. Data Collection: It is necessary that solid data is gathered, in order to ensure that the information being provided is credible and accurate.
  2. Disseminated: The information must be accessible through multiple forms of media in order to ensure it reaches a significant number of people.
  3. Communication: There must be avenues through which people can communicate and discuss information with networks of other concerned citizens.
  4. Action: In order to lead to empowerment and to citizen agency, the combination of information and communication must be met with opportunities for people to organize and act on the information in order to improve their own lives.

If used strategically, ICTs can facilitate all levels.  Not only can they be used to gather data directly from citizens and disseminate information back to those same people, but they also encourage decentralization, helping people to expand their networks and organize in ways not previously possible.  The thesis explains the theory and processes behind each in detail, and uses the civil society organization Twaweza as a case study for how to operationalize these ideas.

I was more than pleasantly surprised to see very similar ideas echoed and applied to mobile money in a recent paper by Ignacio Mas entitled, “Making Mobile Money Daily Relevant.”  From my experience, mobile money is often viewed academically as a cousin to ICT4D: related, but not in the same family.  However, my own motivation for working in both areas was the same: how can information be used to truly empower those that are currently marginalized, whether they are marginalized from government, basic utility services, or the financial system?

Mas apparently has a similar motivation, and in the paper he makes a compelling argument for why financial institutions and mobile money providers could benefit from taking a more information-based approach to financial services for the poor.  Just as the poor are excluded from other information systems, they also have limited contact with their bank – if they are banked at all, then they may visit a branch once a month and hear a radio advertisement once a month – 2 times per month, and only one chance to receive information from the client. A radically different approach which moves away from off-the-shelf products to services that use information to customize messages to individual financial goals could finally address the key hindrances that keep so much of the world’s population unbanked.

In this model, providers can improve data collection by increasing contact with their clients.  Once clients are transacting via a mobile phone, they are sending more data to the bank.  The bank can then “start thinking about having a conversation with their customers based on their goals and aspirations rather than on the bank’s standard list of products” so that they can disseminate more useful and relevant information to the client.  Messages would no longer need to convince clients about abstract financial concepts; instead, they would only need to understand that by putting a bit of money of away, they are closer to their goal of, for example, paying school loans.  Clients then communicate with their bank and with each other, especially if bank implements virtual ways to mimic the peer pressure leveraged by the group microfinance model.  Examples of virtual peer pressure strategies include savings buddies, social credit rating programs, and incentivizing community-level savings – think SmartyPig or Weight Watchers Online which let people work with friends to keep each other on track to their goals.

Image from SmartyPig.com

Most importantly, these services and the network effect created would provide actionable ways for individuals to manage their own personal finances on a daily basis through the one tool that they already used the most, their mobile phone.  The poor would gain customized services to manage against financial shocks and the banks would gain loyal customers and a plethora of data that can be used to grow transactions.  In summary, Mas has presented a unique, out-of-the-box strategy for applying an information-based approach to mobile money to “put customers in control.”  Hopefully, this paper will catalyze further innovation in making both information and financial services daily relevant to all individuals.

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