Unlocking Capital in Financial Services for the Poor
How MIX is addressing a familiar problem in new areas of inclusive finance
By Mayada El-Zoghbi & Henry Gonzalez, October 2019
Mayada El-Zoghbi is the Managing Director of the Center for Financial Inclusion at Accion. Previously, she was the Lead for Strategy, Research & Development for CGAP. Mayada served as the Chairperson of MIX’s Board of Directors and is now an observer.
Henry Gonzalez is currently an Associate Fellow at Oxford University’s Skoll Centre for Social Entrepreneurship and previously was the Head of Research & Advisory at responsAbility AG Investments. He currently serves as the Chairperson of MIX’s Board of Directors.
Savings lock box, Uganda. Photo by Allison Shelley for CGAP.
Nearly twenty years ago, a group of financial inclusion stakeholders came together to solve a problem restraining industry growth and development: information asymmetry. One of the results of this collaboration between funders, investors, and other ecosystem actors was the Microfinance Information Exchange, today more often referred to as “MIX.” The full name is important to remember as we reflect on the evolution of the financial inclusion sector, drastically changed since MIX’s founding.
Microfinance, a synonym for financial inclusion at the time, is now one of several areas within a rapidly expanding and increasingly diverse financial services sector. And with the launch of the Sustainable Development Goals (SDGs) and the mainstreaming of sustainable and impact investing, financial inclusion has come to be viewed as an enabler of development outcomes instead of an outcome itself. As a result, many institutions integrated financial services as a component of other sectors including health, energy, and agriculture. More recently, financial services for the poor have transformed completely, with innovations in technology resulting in new players, products, and delivery channels.
Despite all this change, or perhaps because of it, a familiar challenge has returned: information asymmetry. Emerging providers like fintechs and the broader set of actors in digital finance, as well as persistently challenging areas like agricultural finance, are constrained by a dearth of reliable and comparable data. This lack of data and information obscures opportunities in these promising areas of inclusive financial services. The result is that the investment dollars that could be directed to financial products and services benefiting the poor are instead sidelined or redirected.
A familiar challenge has returned: information asymmetry.
MIX has experience solving these types of problems. Today, nearly two decades on, it is easy to take for granted the work MIX did to improve the availability of data and information on microfinance. MIX developed a common taxonomy to improve understanding across the industry, designed data standards to enable accurate comparison across markets, and created performance benchmarks to identify investment opportunities across providers. These efforts enabled the growth and development of the microfinance sector, and as MIX’s flagship dataset, MIX Market, grew, so did the microfinance market. The resulting transparency and improved data unlocked billions of dollars in capital as the microfinance market matured over the subsequent years.
MIX’s efforts in this regard taught us that information is a fundamental requirement for the proper functioning of any market. The right data can build transparency, increase visibility, and enable capital to flow to the places it is needed most. For these new areas to flourish and improve the lives of the poor, it is critical we support the development of data solutions.
In recent years, MIX has invested increasingly in developing data solutions for these emerging areas of financial inclusion, and believes now is the time to increase its focus in these areas. In fact, MIX has already begun, as evidenced through its work in agricultural finance and inclusive fintech. For MIX to create catalytic impact in these emerging areas just as it did in microfinance, the lean nonprofit must fully align its strategy and operations with this goal. MIX’s strategic shifts to refocus on data initiatives in fintech, digital and agricultural finance - and other frontier sectors to come - are a welcome development for the entire financial inclusion community.
We applaud the entire MIX team for taking these bold steps to support the healthy development of these new areas and ensure financial services create real and positive impact for low-income people. In many ways, by doubling down on these new areas, MIX is reinforcing its intended purpose and mission: to address data asymmetry problems for financial services for the poor. We congratulate MIX for continuing to play this important function and are excited by the potential that data transparency can play in these new spaces.