Pamela P. Flaherty

Citi Foundation: Investing in products, access and people for financial inclusion

For many years, the Citi Foundation made many small grants. In 2008, we made 2,600 of them, some for just $2,500. They focused on activities accomplished rather than impact and results. Our objective was to disburse grants to as many community-based organizations as our financial resources would allow, with programs in many areas.

We realized we needed to focus and set measurable impact targets that reflected sound investment thinking and responsible use of financial resources.

A little background: In 2007, I became President and CEO of the Citi Foundation, which has on-the-ground operations in more than 100 countries. My approach reflected years of experience within Citi, where I wore numerous hats, from running our consumer bank in New York City to leading human resources. I knew we had to evolve to better align with Citi’s business capabilities and mission, while demonstrating to our internal partners, grantees and shareholders the value of the Citi Foundation. After more than a year of deep analysis and countless meetings with partners, we refined our strategy: expanding financial inclusion and economic empowerment for lower income individuals and families.

This is important to us because we believe that financial inclusion leads to economic empowerment and opportunity. According to McKinsey, there are roughly 2.7 billion people who are unbanked or under-banked worldwide. They do not have access to formal financial services which provide safety and security of financial assets and enable families to build economic resiliency. Access to formal financial services is limited for several reasons including cost, proximity, social barriers, education, and appropriateness of product design.

The Citi Foundation, through its hundreds of grantees and in partnership with Citi businesses, is working to overcoming these barriers through the development and deployment of appropriate and affordable products that are more easily accessed through technology to an educated and empowered individual.

One particularly innovative partner which illustrates our approach is the Center for Financial Services Innovation (CFSI) whom we worked jointly with to establish the first ever US Financial Capability Innovation Fund. CFSI and the Fund are incentivizing innovation in the development and delivery of financial products that strengthen people’s financial capabilities in the U.S. Now in its second round, the Fund has invested in five different projects which are all testing breakthrough models including Piggymojo, which is using technology and social networks to drive impulse savings.

We also are excited by the work of Proyecto Capital in Latin America. Proyecto Capital is testing, scaling and evaluating programs designed specifically to increase financial inclusion by linking savings and financial education to government-sponsored conditional cash transfers. Around the world, governments remit billions of dollars to their citizens in support of social welfare efforts. These programs, by and large, are not tied to formal financial products or institutions and the funds remitted are often spent immediately upon receipt. Proyecto Capital is helping to integrate these transfers with the financial institutions so that low-income people can save small amounts of money. This act of saving accomplishes two goals. First, it helps to establish some financial security. Second, it changes the mentality of the recipient from spending to asset building or short-term thinking to long-term planning. Proyecto Capital’s work is timely too as more and more governments see the opportunity to link these transfers to savings and are changing these economic and social development policies, as evidenced by recent statements at the G20.

When individuals, households and communities can build assets such as education, savings or the capacity to earn a livelihood, they improve their chances of building a more resilient and productive life.

“We work with our grantees to help them measure how they improve clients’ lives. That’s why we changed our terminology to focus on “financial capability” instead of financial education. We want to know if people are better off by having saved more, or reduced their debt.”

Core to our theory of change is our ability to leverage the talent, capability and resources of Citi’s global organization to bring good ideas to scale. A great example of this “more than philanthropy” strategy are our efforts to work in partnership with Citi Microfinance to help low-income families establish educational savings accounts which can act as a springboard to college success. Recent research shows that students from low-income families who have a college savings account are up to seven times more likely to go to college. In short, the act of savings helps create and reinforce persistence towards a long term goal such as college. Through the leadership and philanthropic investments of the Citi Foundation and our partners KIPP and UNCF we are helping thousands of students at KIPP charter schools in select cities open a college savings account. What makes this effort unique is that our colleagues at Citi Microfinance rolled up their sleeves to design a scalable savings platform to support the efficient scaling of the initiative.

We recognize that our philanthropic resources are finite (2012 total giving is $78 million) and that, in addition to our “more than philanthropy” and partnership approach, investing in innovations and tracking their impact, we also invest in thought leadership in our focus areas so we can help share what works, and help shape policy and industry practice. For instance, we invest in research that helps define an opportunity while stimulating dialogue. One example is Bridging the Gap, a research project we commissioned with the Monitor Group to help banks and microfinance institutions better understand the value of empowering their clients to make sound decisions through financial education. The breakthrough aspect of the research was a vastly improved understanding of the business case for financial capability — answering the question of how to financially sustain education programs that previously had been thought of as an expense. The report identified five models of financial education that are capable of generating revenues while empowering clients.

The final piece of our transformation is measuring impact. We work with our grantees to help them measure how they improve clients’ lives. That’s why we changed our terminology to focus on “financial capability” instead of financial education. We want to know if people are better off by having saved more, or reduced their debt. The evidence of what works and what does not is emerging and on-going. Through research efforts with CFSI as well as the Citi IPA Financial Capability Research Fund, in partnership withInnovations for Poverty Action, among others, we are seeing models of success and effectiveness. These very specific projects along with a larger literature review suggests that people’s economic behavior does change with timely education-linked products that allow people to put their knowledge in to action.

We are honored to be a part of the Skoll World Forum online series and to share our approach to tackling big social and economic problems through innovation, collaboration and steadfast focus. The Citi Foundation has always looked to learn from others to improve the way we operate; the online series will help us to do the same with so many of you.

Editor’s Note: This post previously appeared on the Skoll World Forum.
financial inclusion