Financial Inclusion: For What?

CFI has put forward the proposition that financial health is the goal of financial inclusion. Fundamentally, financial tools exist to help people manage mismatches between their income and expenses over time and space and build lumps sums of cash. The ability to do those things is financial health. The financial health concept is also resonating with financial service providers (FSPs) globally. It’s viewed simultaneously as a useful lens for understanding customer behavior and an easy way for providers to communicate to customers that they’re more than just an account number. Financial health, thus, seems like a natural goal to guide the industry.

However, as this CGAP blog post notes, it’s unclear where financial health sits in the industry’s theory of change. Is it an intermediate outcome or the ultimate one? It’s also proving difficult to define and measure, especially across different geographic and socio-economic contexts. With those concerns in mind, is this concept enough to guide us?

Financial inclusion, financial services, and microfinance are explicitly mentioned in the targets of seven of the 17 Sustainable Development Goals. Their presence implies that financial services are a means to improve quality of life and suggests that creating financial stability should not be the only goal of financial inclusion.

The implications of sustainable development as the financial inclusion sector’s proverbial North Star are significant. It would require our focus on some of the world’s most intractable problems, like climate resilience and access to safe drinking water. It would challenge us to work even harder to reach the most vulnerable, reinvigorating efforts to include the ultra-poor and women in conversations about promoting small businesses and employment.

That could be a tall order for providers, even those focused on social impact. Serving the most vulnerable or niche markets is costly, which makes private investment riskier and less profitable. In that environment, what is the role of investors (impact-oriented and otherwise) and donor organizations? Is the financial inclusion industry, an industry which has increasingly aligned itself with the private sector and traditional finance over the years, prepared to adopt a new and broader mandate like this?

If financial inclusion is a means to an end, maybe we should focus less on the ends and more on ensuring the means are fair. Doing so would be no small feat when “inclusion” is granted to people who can be served profitably, and of the included, the people with the least are either scrutinized or put at the greatest risk compared to the people with the most. Should striving for equity – fair access, fair use, and fair treatment for customers – be where we focus our efforts?

A focus on equity could be a driving force for collaboration.

A focus on equity could be a driving force for collaboration. Policymakers, regulators, and providers would need to work together to understand the opportunities and challenges for diverse market segments and formulate strategies to serve them. Efforts like the Smart Campaign’s client protection principles and digital credit standards or the GSMA Mobile Money Certification would serve as important guideposts to ensure customers are protected. And providers may even find that a focus on fairness helps drive customer activity.

Maybe these objectives are too difficult to define and measure; too difficult to achieve consensus on; or unreasonable given the nature of financial services. Maybe we should focus on what businesses do best: achieving a positive bottom line.

This may sound cynical or like an endorsement of unfettered capitalism. It’s neither.

This may sound cynical or like an endorsement of unfettered capitalism. It’s neither. Rather, it’s a recognition that successful businesses that are also good-faith actors deliver value to clients, as demonstrated by their success. As costs are driven down, the infrastructure to enable access will expand, demand for formal financial tools will increase, and businesses will spring into existence. With this as a guiding vision, the industry would focus on martialing capital to finance innovative ideas, nurturing their development, and aggressively scaling their successes.

We’re excited to have you join us during the week of October 21, 2019, as we debate these and other objectives for the industry. We’re anticipating unique perspectives from stakeholders across the financial inclusion spectrum– banks, traditional microfinance institutions, fintechs, regulators, investors, donors, non-profits, and others. Please feel free to reach out to us with any questions; sign up to receive updates and announcements; and follow #Finclusionweek on social media.