Considerations for the Pursuit of Financial Inclusion – Beyond Account Access

The number of people using bank accounts is not growing


Account Use (Developing Economies) - Click to Enlarge

Account Use (Developing Economies) – Click to Enlarge

Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as defined by CFI. The Center’s new publication “By the Numbers” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.

Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”

While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent — quite a jump! — over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.

Saving Activity (Developing Economies) - Click to Enlarge

Saving Activity (Developing Economies) – Click to Enlarge

Which brings us to the continuing relevance, and in my view the unique role, of microfinance in achieving full financial inclusion. Based on its assessment of the numbers and trends, especially those related to discouraging levels of inclusion and product take-up amongst the poorest and most vulnerable groups, the report posits that “microfinance providers will continue to be significant players in the delivery of financial services, especially basic credit and savings, at the base of the pyramid.”

My view, shared by many members of the Microfinance CEO Working Group (MCWG) that I Co-Chair, is that MFIs can play an important role in facilitating the elusive on-ramp between limited use of accounts including digital financial services and achieving the most robust vision of being fully included. This is one reason why Grameen Foundation is working hard to set up leading MFIs in the Philippines, India, and Kenya to play this essential bridging role. The MCWG is likely to have something formal to say about this later in 2015.

The report is chock full of interesting tidbits about the changing financial inclusion landscape:

  • While the gender gap in financial inclusion stubbornly persists, the urban/rural gap is slowly closing.
  • Countries with national financial inclusion strategies achieved double the growth in account access compared to countries without such a strategy in place.
  • Indian government incentives to provide microinsurance to lower income segments over the last decade have resulted in that country having 40 percent of the global total of microinsurance policies.
  • Four countries – Indonesia, Tanzania, Sri Lanka, and Pakistan – “became fully interoperable for mobile money” by the end of 2014.
  • Nokia recently released a $29 smartphone, which could presage the acceleration of the use of apps that make it easier for illiterate (or even non-English speaking) people to use digital financial services more.
  • Global actors in financial inclusion have tended to focus on large countries and countries where relatively easy progress was thought to be possible. Left unsaid is how many countries have been largely ignored and what their fates may be.
  • Most adopters of mobile money were already “banked.”

This excellent report should underscore the importance of shifting our attention from account access to the quality and value of financial services available to the base of the pyramid. In other words, our “north star” should be full financial inclusion. Furthermore, it shows that we ignore the real and potential contributions of actors other than formal financial institutions and mobile money operators – such as microfinance institutions, savings groups and other informal approaches – at our collective peril. To again quote the report, “full financial inclusion should consider informal services an important, ongoing part of the mix.”

At the outset of the report, the authors state that they have always considered the notion of Financial Inclusion 2020 as a “thought experiment.” To me, this notion calls to mind Professor Muhammad Yunus’ idea of creating a social fiction literature akin to science fiction, since so many things we imagined as science fiction a generation or two ago are realities today. What we imagine can become reality, and often does. How important then, that we train our imaginations on the robust notion of full financial inclusion rather than on something much more limited, and potentially limiting, than this bold and compelling vision.

Figures credits: “By the Numbers” – CFI

Have you read?

By the Numbers: Benchmarking Progress Toward Financial Inclusion

Financial Inclusion by 2020? It Depends

Global Findex Offers Next Steps for How to Give People Bank Accounts


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