Nachiket Mor, Bindu Ananth and Suyash Rai October 23, 2009 Universalising Complete Access to Finance  –  Key Conceptual Is...
<ul><li>Management of risk by movement of resources across contingent states </li></ul><ul><li>Inter-temporal consumption ...
<ul><li>Two contrasting blue-prints for a financial system </li></ul><ul><li>Product design: simplicity vs. complexity </l...
<ul><li>Product menu driven approach </li></ul><ul><ul><li>Design and provision of several  disaggregated, standalone prod...
<ul><li>Financial well-being approach: </li></ul><ul><ul><li>Develop and offer financial propositions tailored towards ind...
<ul><li>Product A: a crop loan to a farmer; equated monthly installments </li></ul><ul><li>Product B: a crop loan to a far...
<ul><li>Provider literacy Vs. customer financial literacy </li></ul><ul><li>Responsibility for financial outcomes, not pro...
<ul><li>How to train high school graduates in large numbers to become “wealth managers”? </li></ul><ul><ul><li>Better tool...
<ul><li>Typical Household </li></ul><ul><ul><li>Father, 34 years </li></ul></ul><ul><ul><li>Mother, 32 years </li></ul></u...
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Brookings Presentation

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Brookings Presentation

  1. 1. Nachiket Mor, Bindu Ananth and Suyash Rai October 23, 2009 Universalising Complete Access to Finance – Key Conceptual Issues
  2. 2. <ul><li>Management of risk by movement of resources across contingent states </li></ul><ul><li>Inter-temporal consumption smoothing by movement of resources across time </li></ul><ul><li>Outcomes of any financial inclusion effort must be benchmarked </li></ul><ul><li>to this (not a lower standard) </li></ul>Household-level Outcomes of a Financial System
  3. 3. <ul><li>Two contrasting blue-prints for a financial system </li></ul><ul><li>Product design: simplicity vs. complexity </li></ul><ul><li>Accountability of the financial services provider </li></ul><ul><li>How do we achieve financial inclusion outcomes at scale? </li></ul>Focus for today’s talk
  4. 4. <ul><li>Product menu driven approach </li></ul><ul><ul><li>Design and provision of several disaggregated, standalone products available from a variety of “product manufacturers” </li></ul></ul><ul><ul><li>The customer facing front-end in this system is typically an agent marketing the products </li></ul></ul><ul><ul><li>Low emphasis on expertise of the agent </li></ul></ul><ul><ul><li>Products may have overlapping functions </li></ul></ul><ul><ul><li>Customer chooses from a menu, absorbs mismatch between her needs and available products </li></ul></ul><ul><ul><li>This approach has dominated most efforts towards financial inclusion, which is often defined in terms of access to one or a few products. </li></ul></ul>Two Contrasting Blueprints of a Financial System
  5. 5. <ul><li>Financial well-being approach: </li></ul><ul><ul><li>Develop and offer financial propositions tailored towards individual risk profiles </li></ul></ul><ul><ul><li>The back-end could be a variety of product manufacturers but the customer-facing front-end is a local financial institution </li></ul></ul><ul><ul><li>Not defined by a product frame, but by delivered functionality to customer </li></ul></ul><ul><ul><li>Very high emphasis on provider expertise (analogous to a doctor) </li></ul></ul><ul><ul><li>Customer and provider jointly decide the financial strategy that makes sense </li></ul></ul><ul><ul><li>This approach holds enormous promise for meaningful financial inclusion </li></ul></ul>Two Contrasting Blueprints of a Financial System
  6. 6. <ul><li>Product A: a crop loan to a farmer; equated monthly installments </li></ul><ul><li>Product B: a crop loan to a farmer; principal and interest payments contingent on observed rainfall in her neighbourhood </li></ul><ul><li>Is the “race to simplicity” in the best interest of the low-income customer? </li></ul>Product Design: Simplicity and Complexity
  7. 7. <ul><li>Provider literacy Vs. customer financial literacy </li></ul><ul><li>Responsibility for financial outcomes, not product information </li></ul><ul><li>Ex-post liability for mis-sale </li></ul><ul><ul><li>Selling life insurance to a 45 year old wage labourer (who has no bequest motive) counts as a mis-sale in Blueprint 2 </li></ul></ul><ul><ul><li>Selling rainfall insurance to a farmer with 10% premium when the underlying farm income margins are lower than 10% </li></ul></ul><ul><ul><li>Forced savings/fixed repayment loan programmes for individuals with highly volatile cashflows </li></ul></ul>Provider Accountability
  8. 8. <ul><li>How to train high school graduates in large numbers to become “wealth managers”? </li></ul><ul><ul><li>Better tools for training, based on visual interfaces </li></ul></ul><ul><ul><li>Simulated games Vs. fundamentals training </li></ul></ul><ul><li>Is it feasible to have outcomes-based regulation with ex-post liability? </li></ul><ul><ul><li>Parallels from corporate banking and medicine </li></ul></ul>Delivering Financial Inclusion at Scale
  9. 9. <ul><li>Typical Household </li></ul><ul><ul><li>Father, 34 years </li></ul></ul><ul><ul><li>Mother, 32 years </li></ul></ul><ul><ul><li>Son, 10 years </li></ul></ul><ul><ul><li>Daughter, 8 years </li></ul></ul><ul><li>Bottom chart shows a smoother and better red-line when health risk is eliminated from the household </li></ul>LIWE – impact of eliminating health risk

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