(L to R) Nicki Post, from Mercy Corps; Kevin Mulligan from USAID Center for Resilience and Amy Sink Davies, RTI present at the 2019 SEEP Annual Conference.
Access to financial services is a widely recognized, powerful tool for economic growth and building resilience. However, people who are highly vulnerable - or who lack resilience - usually face a wide range of barriers that limit their access to financial services. Building resilience through financial services, therefore, requires us to meaningfully address these barriers.
During the 2019 SEEP Annual Conference hosted last October in Washington, DC, RTI organized a session that explored which types of financial services build resilience and identified the barriers to their utilization. The panelists debunked misconceptions about why financial services succeed or fail at building resilience, providing examples of why index-based insurance is organically scaling in Senegal yet has fizzled out in Mali. Following the panelists’ remarks, over 70 development practitioners shared insights from their own resilience and financial services programs, identifying constraints, or enablers, for three types of financial services – savings, credit, and insurance – based on their global expertise. Here is what we learned.
Savings are a key asset that help people absorb both idiosyncratic (e.g., death of a family member) and covariate (e.g., flood) shocks and stresses. Access to a local savings group or institution is the obvious first step needed for people to save money in most contexts, although other forms of savings – for example, livestock assets or accumulated social capital – can also be important. Regardless of the form of savings, trust and inclusive access (e.g., for women and youth) are two universal enablers for the most vulnerable. In conflict settings, building trust was noted as being especially important; otherwise, the most vulnerable people will often not participate. For monetary savings, the group also noted three additional enablers that we need to address in our resilience programming: financial literacy; digitalization/fintech; and a conducive regulatory environment.
Credit can both help people prepare for shocks and recover from them. For example, drought-tolerant crop varieties enable farmers to adapt to climate change, but they often require access to credit for farmers to buy improved seeds. In addition to the constraints for savings listed above, the group identified access to a local financial institution with appropriate lending products as a key requirement for accessing credit. Collateral in the form of savings, property, social capital, or reputation (credit history) was also identified as a prerequisite, with practitioners providing examples of land titling, business records, and other initiatives to help overcome these obstacles. When credit is related to livelihood activities, they also noted that borrowers need to be able to access markets, which can require aggregators such as farmer associations. Some participants also noted that climate and market data are key enablers.
Insurance can play a key role in transferring risk and transforming the agricultural sector so that the impact of shocks is contained. In addition to the enablers stated above for savings and credit, the group rightly noted that insurance also requires a functional insurance company with livelihood-focused insurance products. Insurance companies are increasingly offering crop and livestock insurance products in developing contexts, but the group noted that a key enabler to the successful adoption of insurance is bundling insurance with credit. In fact, the bundling of insurance and credit was recognized as a critical enabler for both types of financial services.
Our Two Cents
As we further explore the role of financial services in mitigating risk and building resilience, we must clearly face the fact that longstanding barriers to access must be addressed. Expanding access to financial services for more vulnerable people will require creative models, such as bundling insurance and credit, that reduce the risk for those populations without creating intolerable risk for financial service providers. Instead of viewing financial services as a step-wise progression, starting with savings and ending with insurance, we need to instead assess the prerequisites for each type of financial service, recognizing that each type of financial services supports different types of coping strategies – knowing that vulnerable people need more than one strategy. Additional analysis of the factors underlying both successful and unsuccessful models to build financial access for the most vulnerable should better inform best practices moving forward.
Tracy Mitchell is a Senior Resilience and Food Security Adviser at RTI International.