Financial Inclusion and the Post-2015 Global Development Goals

Are financial services development goals, or enablers?

The following post was originally published on the Huffington Post World Blog.

The High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, led by David Cameron, Ellen Johnson Sirleaf, and Susilo Bambang Yudhoyono, has released its recommendations for the next round of world development goals. This document launches what is sure to be a lively debate that will take place in the coming months, as the United Nations considers this report and prepares for the Secretary General to announce the official U.N. recommendations later this fall.

The Eminent Persons panel put forward twelve illustrative goals, ranging from 1) End Poverty to 12) Create a Global Enabling Environment, and touching in between on health, education, water, energy, and other priorities.

For those in my line of work, the immediate question is: How does the report position financial inclusion?

In recent months, when the subject of financial inclusion and the Post -2015 Global Development Goals (GDGs) comes up, someone is sure to say, “Financial services aren’t development goals; they’re enablers.” And this is the crux of a dilemma. The importance of financial inclusion is increasingly recognized. But if financial services are seen through an “enabler” lens, they would not appear in the top tier of GDGs, which revolve around outcomes of intrinsic value to people and nations. What is the role of an enabler like financial inclusion in a development framework that focuses on outcomes?

It looks like the Eminent Persons recognized this dilemma, and as a result, they had a hard time finding the right place for financial inclusion. They did address it, finally, by tucking it under proposed goal 8) Create Jobs, Sustainable Livelihoods, and Equitable Growth. Specifically, sub-goal 8c says, “Strengthen productive capacity by providing universal access to financial services and infrastructure such as transportation and ICT.” They put it into a section that is mainly about job creation, and then linked it to physical and communications infrastructure. Another sub-goal (2c) calls for equal rights for women to open bank accounts (along with the right to own property and sign contracts), implying that financial services are a necessary part of an economic identity.

In my view, the panel got it partly right and partly wrong. It was right when it placed financial inclusion alongside other forms of infrastructure. Financial services are perhaps most comprehensively viewed as providing the infrastructure that, as the panel states, enables people “to make the most of their resources.”

Making the most of one’s resources captures the power and role of financial services at the base of the economic pyramid. A microfinance loan does not create a vegetable vendor’s customer market, but the working capital it provides may enable her to arrive in the marketplace with vegetables to sell. A savings account does not get a youth into a preparatory school, but it may enable the youth’s parents to stockpile the money for school fees. Electronic money transfer services do not change the amount a worker can set aside to send home to his parents, but they enable the money to move faster and cheaper, and they may ensure that more of it actually reaches the parents. Financial services assist people to manage their economic lives across the barriers of time and space and in the face of risks. Infrastructure is an apt description of this role.

The panel got it wrong, however, in pegging financial services only to economic growth and productive capacity. The facilitating role of financial services is potentially so pervasive that it underpins several — possibly the majority — of the proposed GDGs.

Empower Girls and Women? A loan to a woman, in her name, gives her increased economic status in the family and possibly in the community.
Provide Quality Education? Savings and credit help families pay for school.
Ensure Healthy Lives? Health insurance is integral to enlarging access to health care.
Ensure Food Security? Farmers need financial services to purchase inputs, manage the seasonal flow of their incomes, and cope with agricultural risks.

For governments charged with meeting the GDGs, the long list of goals represents a daunting fiscal challenge. Goals predicated on massive government expenditure are unrealistic for many nations. Financial inclusion can lighten the load. When a person uses financial services as a means to achieve any of these goals, government’s burden falls. If a poor family steadies its economic life using financial services, its need for conditional cash transfers decreases. The same goes for health, housing, education, and even pensions. Financial services that help people become more self-sufficient reduce the need for government subsidies. This is one more way in which financial services act as an enabler.

The GDGs that are ultimately adopted will embody humanity’s aspirations in this part of the 21st Century, and as such, they will portray the world in terms that resonate with our deepest values. Perhaps financial services are too utilitarian to inspire the kind of fervent hopes associated with many GDGs. But when it comes to the practicalities, when we start to ask how to bring these hopes into reality, we will find ourselves turning to financial services again and again.

It is important that the GDGs adequately articulate the multifaceted role of financial services. The world needs to set and track ambitious targets for financial inclusion. One solution would be to highlight financial services and inclusion in a single prominent place, with a comprehensive explanation that financial access for all the world’s people is critical to the success of many of the GDGs.

If ultimately the GDGs do not become the focal point for tracking progress toward financial inclusion, however, then another focal point is needed. Today the best candidate for that focal point is the Global Partnership for Financial Inclusion (GPFI), created as part of the G-20 process. The GPFI has developed a G-20 Basic Set of Financial Inclusion Indicators by which it and individual countries will track progress, and it is working on an expanded set that will measure not only access and usage, but also quality of financial services. As the GDG process moves forward, the GPFI — and the broader community of those working on financial inclusion — should strive to set targets and indicators for financial inclusion with the GDGs in mind, ensuring that efforts to create a financially inclusive world will also support achievement of the goals that humanity most strongly embraces.

Have you read?

The Foundation for the Next Global Development Goals?

Savings Groups and the MDGs

G20 Financial Inclusion Indicators: The New Data Sandbox 

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