> Posted by Beth Rhyne
With 2012 now here, the Center for Financial Inclusion’s target year for full financial inclusion – 2020 – is not very far away. If we peer carefully out into the horizon, we can already start to see the outlines of the world at that time. Demographers may disagree about projections far into the century, but the path to 2020 is pretty clear.
Of course, because the time is short, we know that in many or even most ways the world will be quite similar to today’s world. But changes have a way of sneaking up on us. Here are five important demographic trends that we need to consider as we chart a path toward full financial inclusion.
- Half a billion more people. World population is just now at 7 billion, and by 2020 it will reach 7.5 billion. All but a billion people will live in what were once known as developing countries, (but that designation will seem quaint and hopefully we’ll have some new language in use). India and China will account for 3 billion. As birth rates fall, population growth will begin to slow. The population of Eastern Europe is already starting to shrink, while that of Africa will continue to grow after all other regions have leveled off.
- Population aging and youth bulges. One of the biggest trends is the aging of the world’s population, caused both by fewer births and by rising life expectancy. Average life expectancy in developing countries will rise from about 65 today to about 68. In most developing countries 2020 will see a bulge in the working age population, as well as a growing elderly population – nearly a billion people over the age of 60. In many of these countries the elderly have until very recently been only a small fraction of the total population. At the same time, Africa and the MENA region will also be experiencing a youth bulge, with many new labor force entrants. In some countries, notably including China and India, gender-selective abortion already accounts for an imbalance in births of boys relative to girls. By 2020, this imbalance will have begun working its way into the young adult population, with dismal consequences.
- Rising urbanization. Half the developing world will very soon (or already) be urban, and by some estimates, 80 percent of new economic growth will come from cities (A). Of particular note will be the rise of mega-cities: 33 cities with population over 8 million (A). There will also be a vastly increasing number of cities in the 1-8 million range. The housing and infrastructure challenges that accompany such urbanization are enormous.
- Rising lower middle class. While poverty is certainly not about to disappear, many people are moving out of extreme poverty into a class that has been called “the developing world’s middle class” (D) defined as no longer below the poverty line, but well below OECD middle class standards – for example, people with a per capita incomes in the range of $2,000 – $3,000. In Mexico in 2000, for example, there were 12 million households in poverty, of which 7.2 million were very poor and 4.8 were moderately poor. By 2020, projections are that 2.1 million fewer households will be below the poverty line, and of the 9.9 poor families, only 3.1 million will be very poor, while 6.8 million will be moderately poor (C). For financial service providers, this represents over 4 million households who will enter or approach the lower middle class.
- Environmental consequences of rising population with rising incomes. By 2020, global temperature will already have risen by 1 degree Centigrade from its twentieth century average. This will intensify environmental stress, including increased flooding in low-lying coastal areas (Bangladesh, for example), increased competition for access to fresh water, and more extreme weather events (both storms and droughts) making agriculture more precarious.
What does this mean for financial inclusion? There are more than enough of both challenges and opportunities.
If progress is to be made, financial services will need to grow significantly faster than population growth. For providers, it is very good news that more people will move into the developing world’s middle class, as people in this segment have sufficient income to be attractive customers to financial service providers using existing business models. Urbanization will also help by making connectivity easier. This will increase physical access and force a shift in focus from access onto the quality, price and fit of services. Demographic trends point to a need to develop products and services for population segments in addition to adults in the productive middle years. These segments include youth (where focus is already growing) and the elderly (where there is now very little emphasis). Environmental stresses will suggest a need for financial services such as weather insurance for crops, and alternative shelter finance for victims of recurrent flooding. These are just a few of many possible observations.
Over the coming year, the Center for Financial Inclusion will be working to fill out these few brush strokes about the world in 2020. We will seek to connect what demographers, economists and other social scientists tell us about the future with what we know today about the state of financial inclusion.
A. U.S. Central Intelligence Agency, “Long-Term Global Demographic Trends: Reshaping the Geopolitical Landscape,” July 201 (www.cia.gov/library/reports/general-reports-1/Demo_Trends_For_Web.pdf)
B. Economist Intelligence Unit, http://graphics.eiu.com/files/ad_pdfs/eiuForesight2020_WP.pdf
C. Center for Financial Inclusion, “Mexico’s Prospects for Full Financial Inclusion,” September, 2009.
D. Martin Ravallion, “The Developing World’s Bulging (but Vulnerable) ‘Middle Class’,” Development Research Group Policy Research Working Paper 4816. World Bank, January 2009.
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Image credit: NASA
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