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Progress toward Universal Financial Access

Stephen Kehoe's picture


Photo Credit: Women’s World Banking 

Two years ago, Visa announced a commitment, alongside other organizations, to provide financial access to 500 million unbanked adults as part of the World Bank Group’s goal of achieving Universal Financial Access (UFA) by 2020.  It’s widely reported that 2 billion people worldwide (38% of all adults) don’t have access to formal financial services—no bank or savings account, no formal way to store or send money, no basic financial tools to manage life or business or help to generate income.

There was no doubt in our minds that Visa had a role to play, given the reach of our payments network and the fact that facilitating the issuance of digital payment accounts is our core business.  What was not as clear was how much our efforts would need to factor in changes to strategy in order to ensure the kind of accounts people are receiving hit their mark in terms of usage and provided a genuine pathway to full financial inclusion. 

Can 'fintech' innovations impact financial inclusion in developing countries?

Margaret Miller's picture
A digital transaction in the Democratic Republic of Congo. Such transactions are made possible in part by FINCA. FINCA's strategy in Africa is to focus operations on underserved markets and groups, namely rural areas and women. Photo: Anna Koblanck/IFC


Financial technology, “fintech,” has been reshaping the financial services industry with the level and speed of innovation that’s simply fascinating.

A month ago, my colleagues and I attended the 5th Annual Lendit USA conference to check out about the latest innovations and thinking in this field and see how we can apply it to our work.

There is growing interest in trying to figure out this new industry and take advantage of the opportunity. Now billed as the largest Fintech industry meeting in the world, Lendit organizers started this event four years ago with about 200 participants. This year’s event attracted more than 5,000 people.

We work on various areas of financial inclusion and are interested in new ways that can help expand access to financial services to hard-to-reach populations and small businesses in developing countries.

We returned with a new appreciation for the magnitude of change that is coming, and how quickly it could occur – and already is in some instances.  Some innovations will help developing countries leapfrog into this new tech era. This could have a significant – and potentially highly positive - impact on financial inclusion, and fundamentally change the nature of financial infrastructure. 

However, these opportunities come with potential risks, such as those related to (un)fair lending practices related to unmonitored use and analysis of big data or increased systemic vulnerabilities due to threats to cybersecurity. 
 

A year in the life of an incubator

Alexandre Laure's picture

Also available in: Français

Youth trained with The Next Economy methodology.
© Cesar Gbedema/Impact Hub Bamako

Last month, Impact Hub Bamako celebrated its first birthday. The first of its kind in Mali, Impact Hub Bamako is part of a global network of more than 15,000 members in more than 80 locations worldwide, from Bogota to Phnom Penh. Combining innovation lab services with incubator and accelerator programs and a center for social entrepreneurship, Impact Hub Bamako provides a unique ecosystem of resources, inspiration and collaboration opportunities for young, creative Malians working towards a common goal.

Co-founded by four young Malians Fayelle Ouane, Kadidia Konaré, Mohamed Keita and Issam Chleuh Impact Hub Bamako seeks to promote entrepreneurship and generate youth-driven solutions to Mali’s problems, as well as support women’s entrepreneurship and encourage social entrepreneurs to build a shared vision and work together for a collective impact.

“Establishing a community of young entrepreneurs was very important to us,” says Ouane, “so that everyone can build on and benefit from each other’s expertise and knowledge.” Indeed, Impact Hub Bamako hosts a diverse community of entrepreneurs, strategic advisors, architects, social workers, students, consultants, renewable energy specialists, and experts in agribusiness, ICT and corporate social responsibility.

By providing a shared space to work, as well as access to meeting rooms, events and that all-important internet connection, Impact Hub Bamako has given participants the opportunity to leverage each other’s expertise, as well as grow their professional networks not just nationally but globally, as Impact Hub boasts a multinational presence.

“This is our comparative advantage,” agrees Keita, now the hub’s director. “Our incubation/acceleration programs seek not only to promote the necessary conditions for job creation in our country, but also to professionalize our workforce and give them the tools to meet the demands of any employer.”

Engineering growth: Innovative capacity and development

William Maloney's picture
This analysis, co-authored by William Maloney and Felipe Valencia Caicedo, was originally published on VoxEU, an economic-policy website of the Centre for Economic Policy Research.  

Abstract: The generation and diffusion of scientific knowledge and technology are assumed to be drivers of modern economic growth, but there is a lack of firm empirical evidence of this. This column uses the first detailed data on the density of engineers in the western hemisphere to argue that historical differences in innovative capacity, as captured by the density of engineers in 1880, explain a significant fraction of the Great Divergence. The results confirm the imperative of developing higher-order human capital.
 

The generation and diffusion of scientific knowledge and technology are fundamental drivers of modern economic growth. Authors agree that human capital is an important part of the innovative capacity required to facilitate this process, but it is not clear which type of human capital is most important. Some have argued for literacy, secondary, or tertiary education, while others stress higher-order technical skills (Goldin and Katz 2009). In his classic article on endogenous growth, Romer (1990) puts the research engineer at centre stage. From a historical perspective, Mokyr (2005) decides that scientifically minded and engineering-minded technicians were instrumental in industrialisation. These so-called 'upper tails of knowledge' are thought to have been particularly important during the second Industrial Revolution between 1870 and 1914.

The lack of systematic historical data on either the prevalence or impact of engineers on income has made it hard to confirm empirically the importance of these skills. Conceptually, Murphy et al. (1991) argue for the importance for modern growth of engineering, compared to less productive professionals such as lawyers. More recently, Cantoni and Yutchman (2014) show higher growth closer to medieval universities, and Squicciarini and Voigtländer (2015) relate faster French industrialisation in 1750 to Encyclopedie subscriptions. To date, however, neither the historical prevalence of Romer's research engineers nor Mokyr's engineers and mechanics have been quantified in a globally comparable form. In our recent work (Maloney and Valencia Caicedo 2017), we argue that historical differences in innovative capacity, as captured by the density of engineers in 1880, explain a significant fraction of the Great Divergence in the Western Hemisphere as documented by Galor (2011), among others.

Density of engineers in 1900

Our initial contribution to the debate has been through data collection. We have created the first systematic information on the density of engineers at the country level – and additionally for the US and Americas at the state or county level – for the western hemisphere. Geolocated patenting density data for the US allow us to tease out innovative versus adoptive capacity (as posited by Mokyr 1992). We control for other levels of education that, as mentioned before, may also have been important, including basic literacy, secondary schooling, college attendance, and the presence of other high-level professions such as lawyers and physicians.

Breaking through the manufacturing glass ceiling: The case of Arçelik

Aref Adamali's picture




White goods are big business, and it's easy to see why. They're among the most important products for any person who cooks and does laundry, making life easier across a wide range of household functions. Therefore, it is unsurprising that as a manufactured product category – that includes refrigerators and freezers, dishwashing machines, washing (and drying) machines, and stoves – global exports hit almost $90 billion in 2015.
 
Some countries that will leap to mind when thinking about white goods – because of the prominent consumer brands that emanate from them – are Germany (with such household names as Bosch or Miele) and the United States (Whirlpool). As with all manufactured goods, China is also a big exporter. However, among the world’s top exporters for home appliances is a county that not everyone would immediately guess: Turkey.
 
Turkey is in the top ten global exporters of fridges and freezers, washing machines and stoves, only just missing the top ten for dishwashers – but with growth averaging 15 percent a year over the past ten years, it's only a matter of a few years before Turkey is among the top-ranked exporters for this product too.
 
Growing steadily, then going global
 
Among Turkey’s better-known white-goods manufacturers is the firm Arçelik, a part of the industrial conglomerate Koç Holdings. Founded in 1955, Arçelik started off making office and metal furniture, producing its first washing machine in 1959, its first refrigerator in 1960, and launching a vacuum cleaner plant in 1979 and a dishwasher plant in 1993.

However, among the firm’s various accomplishments, one stands out, both to outside observers and for the company itself: when Arçelik broke out of Turkey to go global, first in the markets Arçelik sold to and then in its production locations.
 
This expansion has occurred both through organic growth and through strategic acquisitions. For example, aside from the Arçelik brand itself, among the firm’s flagship brands is Beko, initially a home-grown brand that in the 1990s was assigned to drive Arçelik’s expansion outside of Turkey. The Beko team was tasked with the goal of “being a world brand”: Today a Beko-branded product is sold, worldwide, every two seconds.

Incentivizing equality: Investment-led development as a win-win for all

Cecile Fruman's picture
As we celebrate Woman’s History Month this March, we must continue to push the envelope on operationalizing gender parity for our clients. In developing contexts, women are often concentrated in informal work, micro and small enterprises, or employed in the lower ends of the value chain in primary agriculture, light manufacturing, and tourism industries. A prime country example illustrating this trend is Bangladesh, where female labor force participation hovers around 57% and the ILO reports that 80-85% of labor in the booming ready-made garments industry is provided by women.  
 

Seven things you need to know to turn a start-up into a scale-up

Ellen Olafsen's picture
Entrepreneurs at mLab East Africa, Nairobi, Kenya. Supported by the World Bank Group’s infoDev program, this business incubation center provides support to local start-ups. Photo Credit: © infoDev/World Bank 



About 12 years ago, one of my World Bank Group colleagues told me that his team had just launched an incubation program and I should join the unit. “Incubation?” I asked. “What does that mean?” I’ve always believed that a strong domestic private sector is the key to a sustainable development path for developing countries. So I decided to make the leap and, fast forward 12 years, terms like SMEs, start-ups, incubation, acceleration, and business development services have become part of my daily vocabulary.
 
Over the past 10 years, I’ve had the chance to meet many entrepreneurs, policymakers, and investors. I saw them succeed, and I saw them fail. Most importantly, from their experiences, I learned a few important lessons.
 
1) Growth aspirations
We should never forget to distinguish between entrepreneurs who have a small business to sustain their families — necessity entrepreneurs — and those who have ambitions to become market leaders — opportunity entrepreneurs. Why? Because they are driven by different incentives, face different challenges, and have different chances to scale their companies.
 
2) The lifecycle of an enterprise
The lifecycle of an enterprise refers to different stages that define the evolution of a business — from idea to prototype, from initial sales to profitability, expansion, and growth. This sounds very linear but it is, in fact, a roller coaster. And unfortunately, as opposed to real roller coasters, which are usually pretty safe, many firms fall off the ride and, among those who stay on, most don’t grow. In OECD countries, out of 100 firms that start, only seven actually grow.
 
Your project or program can target either segment of entrepreneurs but you need to be clear about which one you are targeting so you can manage effectively your — and your stakeholders’— expectations.
 
3) Unconscious incompetence
How do you know what will unlock the company’s ability to grow? How does the entrepreneur know what the company needs to scale?
 
The challenge with approaches that wait for the entrepreneur to identify the problem and ask for assistance — the business development services model — is what psychologists call “unconscious incompetence.” Basically, you don’t always know what you don’t know. Think about it: what do entrepreneurs always answer if you ask them what they need? ...finance! How about customers?! How about management and processes? I’m not saying finance is not needed, but it is an over-stated need …or perhaps as marketing professionals would say – a “want,” not a “need.”
 
A comprehensive diagnostic of the enterprise would identify the correct pain point. In many cases, the “need” is actually not finance, but rather “profitability” and “growth.” It may be external finance, or it may be more customers or higher efficiency that gets you there. 

Start-up from scratch? How entrepreneurship can generate sustainable development and inclusion in the Sahel

Alexandre Laure's picture

Also available in: Français

In a first for Africa’s Sahel region, entrepreneurs from Senegal to Chad assembled in Niamey, Niger, for the SahelInnov Expo last month to showcase their businesses and exchange ideas. From livestock to drones, all sectors were on display as a new generation of entrepreneurs and start-ups emerges with bold and innovative ways to address the challenges facing their countries and communities. Increasingly recognized as a strategic path to economic growth, supporting SMEs and entrepreneurs has a key impact on development and is generating more interest from governments in the Sahel. 



Michaëlle Jean, the Secretary General of the International Organisation of La Francophonie, His Excellency Mahamadou Issoufou, the President the Republic of Niger, and Almoktar Allahoury, the CEO of CIPMEN.
Photo Credit: CIPMEN


Hosting the event was Niger SMEs Incubator Center (CIPMEN) whose CEO, Almoktar Allahoury, lauded the initiative. “This is the first time all stakeholders have come together: entrepreneurs, public officials, investors, academia and development partners in one place to discuss the many opportunities and remaining obstacles for the private sector — this is just what we need to take the region to the next level.”

Indeed, entrepreneurship could be especially important for this extremely poor region, with half the population living below the poverty line. Burkina Faso and Niger, for example, are among the fastest-growing economies in the world, yet their GDP per capita are just $395 and $652 respectively, compared to the Sub-Saharan African average of $1,647. A vibrant and active entrepreneurial ecosystem would therefore not only boost economic diversification and improve productivity, it also could prove the vital lever to tackling two of the Sahel’s biggest challenges: youth unemployment and climate change.

The devastating combination of climate change, mass migration, trafficking and the rise of violent extremism has resulted in recurring humanitarian crises and massive food insecurity, affecting more than 20 million people across the Sahel in 2015. Enduringly high birth rates, furthermore, will require millions of jobs to be created to respond to the needs of a rapidly growing and increasingly young population. Institutional reach remains weak and a state of protracted insecurity has taken root over vast swathes of territory.

Sovereign wealth funds: the catalyst for climate finance?

Juergen Braunstein's picture



Following the Paris deal on international climate change, governments are beginning to explore new financing mechanisms for investing in the growing low carbon economy. Over the next decade sovereign wealth funds (SWFs) could become an important game changer in green investing. Recognizing the untapped potential of SWFs, two key questions emerge: how can SWFs increase their exposure to green asset classes? And what are the constraints?
 
Investors and financial institutions are becoming increasingly aware of the risks associated with fossil fuel projects and are showing growing interest in green bonds and other financing tools that facilitate investment in low-carbon energy solutions.
 
Being patient investors, with longer term investment horizons than many others in the financial services sector, SWFs could become catalysts for implementing the December 2015 Paris Climate Agreement. In the November 2016 annual meeting of the International Forum of Sovereign Wealth Funds in Auckland, participants highlighted that SWFs are particularly well-positioned to become trailblazers in green investment. The majority of members are oil-based SWFs which are looking to economic diversification of their finite carbon wealth into industries and sectors that would yield broader societal, economic and financial benefits.

Demystifying start-ups, or why Snapchat is an outlier

Ganesh Rasagam's picture



A market in Ramallah, West Bank. © Arne Hoel/The World Bank

Snapchat made its historic initial public offering this month with a market valuation of $33 billion, which qualifies it as a decacorn (a firm valued at least $10 billion, compared to a unicorn, which is valued at a mere $1 billion). Snapchat, once the bane of parents as a teenage distraction, overtook Alibaba’s record of raising $22 billion in 2014 and has spawned two 26-year-old multi-billionaires.
 
It is tempting to be dazzled by the likes of Snapchat, Uber, Facebook and Airbnb and to conclude that the start-up scene is dynamic and thriving. However, the reality is rather different, and perhaps even somewhat grim: U.S. Census data released in 2016 show that new business creation is near a 40-year low. According to a number of researchers, the rate of business start-ups and the pace of employment dynamism in the U.S. economy have fallen over the past decades.

A critical factor in accounting for the decline in business dynamics is a lower rate of business start-ups and the related decreasing role of dynamic young firms in the economy. For example, the share of U.S. employment accounted for by young firms has declined by almost 30 percent over the past 30 years. This statistic has significant implications given that the churning effect of new firms is an important means of reallocating capital and labor from low-productivity to high-productivity activities, which in turn is required for long-term productivity-led growth.
 
If this were not worryisome enough, the data also shows that since around the year 2000, there are far fewer high-growth young firms being created in the United States. Most start-ups fail, but a very small percentage (between 1 percent and 5 percent, based primarily on data from OECD countries) are innovative and dynamic, grow rapidly and create the most jobs and value, thus making a disproportionate contribution to overall productivity growth.
 
The likelihood of a start-up in the United States becoming a high-growth firm is now lower than before the year 2000, which is counterfactual in the age of digital disruption. No one is quite certain of the economic, social, and demographic factors behind these trends of declining start-up activity and the dearth of high-growth firms in the United States, but there are a number of theories, including the effects of the Great Recession, generational cultural changes and changing risk appetite of young people, a burdensome regulatory environment, and the increasing importance of large, innovative firms that have adapted many of the appealing features of startups.
 
A World Bank Group team is exploring the topic of high-growth entrepreneurship in developing countries to examine whether there are similar patterns and trends as in the United States and OECD countries. This study looks at the prevalence and characteristics of high-growth firms in various economies, the attributes of the firm and the entrepreneur, the business environment, and other factors such as the role of foreign direct investment and spillovers/linkages and agglomeration effects. The focus of the study will be also to assess the policy instruments being deployed and how effective are these in providing targeted support to high growth firms.
 
The Global Entrepreneurship Congress (GEC) this week in Johannesburg, South Africa provides an excellent opportunity to exchange ideas and deepen insights on the challenges of identifying and nurturing high-growth firms. This year’s GEC theme is “Digital Disruption.” More than 4,000 disruptors — entrepreneurs, investors, policymakers and ecosystem builders from more than 160 countries — are coming together to exchange market-specific insights on how to identify and nurture the most innovative high-growth entrepreneurs from across the world to create high-quality jobs, drive productivity-led sustainable growth and find solutions to global challenges.

 

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