Vision and Discipline: How to Innovate for Increased Financial Inclusion

Globally, some two billion working-age adults in emerging markets are excluded from the type of financial intermediation that we take for granted in the developed world: a transaction account to send and receive money; the ability to save for a rainy day; access to credit if needed for bigger, spiky outlays; insurance to help mitigate the financial consequences of an unfortunate event.

Providing the excluded with appropriate financial access has emerged as an important item on the global development agenda. During the Global Policy Forum promoted by the Alliance for Financial Inclusion (AFI) in Mozambique earlier this month, there was a clear consensus among representatives of some 125 policymaking and regulatory bodies --largely from developing countries and emerging markets-- that the key to closing this inclusion gap lies on practical innovations that can reach more people with a broader range of financial services at lower costs than traditional, branch-based banking.

Innovation is easier said than done. But there are ways to increase the likelihood of innovative breakthroughs to initially emerge and eventually succeed. At the opening panel of the event, the discussion among leaders from very different organizations in the financial inclusion space crystalized four common lessons across public and private sector, incumbents and start-ups. They are:

Start with a bold vision
Benno Ndulu, Governor of the Central Bank of Tanzania, where access to basic financial services more than doubled since he took office in 2008, highlighted his realization at the time that you can't conduct meaningful monetary policy in support of the real economy when the financial system doesn't even reach the vast majority of economically active people. It was the Central Bank's embrace of a bold paradigm change that started the country's journey towards financial inclusion.

James Mwangi took over Nairobi-based Equity in 1994 at the age of 28, when it was essentially a bankrupt building society. One of seven children of a widowed mother from Kenya's rural heartland, he put a relentless focus on low-income clients and their needs to seize economic opportunities at the center of Equity's vision and culture. Today, Equity is Africa's largest retail bank by customer numbers and expanding from its home base into a number of neighboring countries.

Create organizational space and runway
This is especially true when innovation has to start within large, successful incumbents. Alfred Hannig started at AFI when it was an incubated project within the German Corporation for Technical Cooperation in Development funded by the Bill & Melinda Gates Foundation. Hannig highlighted the importance of ring-fencing the initial experiment from the everyday pressures within a large organization and the longer-term time horizon that needs to be given to let innovation happen, evolve, and strengthen before going to market.

Visa's global payments network has been around for 50 years and it became a staple among the financially included half of the world. But when it decided to go after the 2 billion working-age adults excluded today, it went through a strategy overhaul that included different organizational timelines, metrics, and incentives to find new ways of reaching this segment, explained Stephen Kehoe, Visa's Global Head of Financial Inclusion.

Embrace uncertainty and possibility of initial failure
Innovative success can't be decreed at the outset and doesn't follow a linear process. Tanzania's Ndulu recalled how the Central Bank's commitment to a new approach started with a missed opportunity: when first presented with the new idea of mobile money, it initially did not recognize its potential. It was the fast success in neighboring Kenya that prompted a second look at the idea and kick started a mindset change.

While its vision was clear, AFI realizes in retrospect how important it was to embrace the uncertainty of outcomes along the way. The network has evolved from grant making to a peer-learning, policy-leading organization, fostering the identification of best practices among members and nurturing their quick dissemination, significantly accelerating their adoption in other parts of the world.

Equity's Mwangu raised the importance of continuously questioning and disrupting your own business model as new ways to deliver better value at lower costs to consumers emerge. Visa's Kehoe highlighted that timing is also crucial in the process: fail early, so you can quickly improve and move on.

Build in process discipline
Successful innovation also requires discipline to ensure that learning and improvements are included in the process, portfolios of new initiatives are reviewed, unsuccessful experiments get sunset, and successful ones are scaled.

In the AFI's experience, for example, an early learning incorporated in the process that significantly enhanced positive outcomes was peer reviews in the context of policy and regulatory innovations. Private sector participants stressed the importance of measured bets and internal practices that ensure continuous learning and improvements.

Contrary to what most people think, innovation does not just happen. It needs a conducive environment and stimulus. But when a good idea demonstrably works, it can spread fast. The success of mobile money in Africa illustrates that point. The initial success of Kenya has now spread to some 89 countries around the world. In 16 countries, more people now have a mobile money account than access to traditional banking. And in those countries where the mobile money network has reached critical mass, it enables new business models that would not have been profitable with the cost structure of a cash-based, brick-and-mortar payment system, including: Mobile savings, data-driven short term credit, micro-insurance, and micro-leasing for off grid solar energy units, among others. Once innovation is set on a fruitful path, it tends to accelerate on its own.