<p>Assessing the progress of financial inclusion</p>


Report

<em>This post originally appeared on the <a href="https://www.accion.org/">Accion</a> website.</em>

The Global Findex is crucial for pushing forward financial inclusion. With data from 150 countries, we can see progress toward bringing financial tools to everyone and even understand how people are using those tools. The driving force behind this research is Leora Klapper, Lead Economist in the Finance and Private Sector Research Team of the Development Research Group at the World Bank Group. Because of her exceptional leadership in advancing financial inclusion, Accion has chosen Leora as their <a href="https://www.accion.org/leora-klapper-to-receive-accions-edward-w-claugus-award-for-leadership-and-innovation-in-financial-inclusion">Edward W. Claugus Award honoree</a>. We took the opportunity to ask her thoughts on the Global <a href="https://www.centerforfinancialinclusion.org/new-global-findex-sixty-nine-percent-of-global-population-is-banked">Findex</a>, the financial inclusion gender gap, and how we can continue to build a world where all people have financial services that make a meaningful impact in their lives. CFI participated in a panel discussion with Klapper (pictured above) after the bestowing of the Claugus  Award. CFI's Beth Rhyne and Deb Drake participated, along with the Economist Intelligence Unit's Monica Ballesteros Aria.<em>
</em>

<strong>Q: Accion has selected you for our Claugus Award based on your contributions to driving financial inclusion. Are there moments of your career that make you particularly proud of the work you’ve done in financial inclusion?</strong>

A: I’m excited that the Global Findex has become a valued resource in the world of financial inclusion research and policy. Several places wrote previews before we released the latest Findex round, and then followed up with reviews after the data was published. People were treating the Findex like a Beyonce album drop. It was a little crazy but very encouraging. But seriously, we’re grateful that the Bill &amp; Melinda Gates Foundation had the vision to fund the Findex data collection and appreciate our great partnership with Gallup. It’s been a privilege to contribute to the policy dialogue with the credibility of data backing us up. Reporting to policymakers the number of millions of unbanked women receiving their welfare payments in cash or the number of government workers with bank accounts, still receiving their wages in cash, is a game-changer.

I’m proud that we moved the needle in highlighting the importance of collecting data not only on household heads, usually men, but on every adult member of the household — including women, young adults, and older adults. I’ve been on my soapbox since the first round of Findex data was published ranting about the importance for women to have their own account. I hope shining light on the gender gap in the use of financial services has helped more women get a safe place to keep their money.

<strong>Q: In your time at the World Bank, how have you seen financial inclusion’s role in eliminating poverty evolve?</strong>

A: When I started working at the World Bank, the overall thinking in development was that countries should generally focus on getting the macro picture “right” — through privatization, deregulation, and so on — so growth would take off and poverty would drop. Now there’s a greater focus on individuals and more recognition that financial services can help people better meet their goals in health, education, entrepreneurship, and so on, thereby driving <a href="http://SDG_Compendium_Digital_Financial_Inclusion_September_2018">development outcomes</a> overall. Each year, we get more Findex queries from a broader range of World Bank colleagues who see financial inclusion as relevant to what they do.

The focus of financial inclusion research has also shifted during my time at the World Bank. At first, it was almost exclusively about microcredit. Then new data sources, including financial diaries, showed us that even poor families that have small, unpredictable incomes lead complicated financial lives — but they often use informal, expensive, and riskier financial products. Now there are tons of studies on savings, payments, agricultural insurance, financial consumer protections, and more. It’s hard to keep up with all the new papers — which is a good problem to have.

[caption id="attachment_33558" align="aligncenter" width="1000"]<img class="size-full wp-image-33558" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/11/award-klapper-pose.jpg" alt="" width="1000" height="516" /> (L to R) Jim Mercadante of host Reed Smith, EIU's Monica Ballesteros Aria, Deb Drake, Leora Klapper, Beth Rhyne, Accion CEO Michael Schlein, Accion Board Director Tara Kenny, and Accion CDO Brian Clancy at the Accion Claugus Forum[/caption]

<strong>Q: What part of the most recent Findex results do you think has resonated most strongly with the industry and why?</strong>

A: I think our data on digital financial services has drawn the most attention. One of the great things about financial inclusion is that it appeals to so many constituencies. We attract the development crowd, of course, but also the tech geeks, big data aficionados, policy technocrats, women’s empowerment champions, financial industry titans, bitcoin zealots, blockchain evangelists, and many others. Our data is routinely cited in both the major international media and regional media across the developing world. People are looking at progress and setbacks in neighboring countries and seeing how they can apply lessons to their own countries.

<strong>Q: If we could do one thing to promote usage of financial accounts, what would it be?</strong>

A: Can I cheat and mention two? First, I would love to see wider digital payment acceptance among merchants in emerging countries. Second, the development advocate in me yearns for cheaper ways to send remittances. Every year migrants send home more money to the developing world than governments spend in aid. That money provides vital support for people in poor countries. But remittances are still crazily expensive: On average, they <a href="https://remittanceprices.worldbank.org/sites/default/files/rpw_report_sept_2018.pdf">cost</a> just beneath 7 percent of the amount being sent, and banks charge the most on average, at more than 10 percent. Our colleagues estimate that reducing costs by 5 percentage points could save up to $16 billion annually — money that could go to development needs.

<strong>Q: As we look beyond access to see whether financial tools are being used and improving people’s lives, what are some of the most important metrics to look at?</strong>

A: I’m quite excited about the research showing the impact of having an account on household spending decisions — like studies in Africa and Asia showing that offering woman an account leads to greater spending on healthcare, education, and nutritious food. In Bangladesh, we’re finding that paying women into an account increases their savings, decreases their impulse spending, and gives them greater say on how household income is spent. In other words, having an account gives a woman greater privacy, security, and control over her money — which gives her a more comfortable seat at the table.

The link between financial inclusion and productivity has been on my mind lately. We’re starting new work with tea pluckers and asking the question: If a woman gets paid directly into her own account, and sees the full payoff of her labor, will she work harder? Or be more productive? Will she be less likely to quit her job? I think this is an exciting new avenue of research to motivate the private sector to partner in our efforts to expand financial inclusion and digital payments.
<blockquote>If a woman gets paid directly into her own account, and sees the full payoff of her labor, will she work harder? Or be more productive?</blockquote>
A lot of financial inclusion analysts have raised the importance of financial health and how to measure it. I’m not yet sure what the best metrics are, but lots of smart people at IPA JPAL and elsewhere are thinking about that, and the results should be exciting.

<strong>Q: The latest data shows that the gender gap in financial inclusion persists. In your research, have you seen any particularly effective strategies for closing this gap?</strong>

A: India’s experience shows that policies can help close the gender gap. Three years ago, men were 20 percentage points more likely than women to have an account. Today, the gender gap has fallen to 6 percentage points, thanks to a government push to expand account ownership by drawing on biometric identification. That progress comes with a lot of caveats. Nearly half of accounts in India are dormant, and women are more likely than men to have a dormant account. But at least they have greater access to this basic financial service — and the potential is huge.

<strong>Q: As mobile phone usage continues to grow, how do we ensure technology can live up to its promise for driving financial inclusion?</strong>

A: Mobile phones can be tools for delivering fair, affordable financial services to the poor, and they can also be tools for defrauding the poor. The difference between the two has a lot to do with consumer protections. Recent CGAP <a href="http://www.cgap.org/research/publication/digital-credit-revolution-insights-borrowers-kenya-and-tanzania">research</a> on digital credit suggests that weak oversight has allowed companies to push predatory loans through mobile phones, leading to defaults and indebtedness. Policymakers need to make sure that regulations keep pace with digital innovation to ensure things like that don’t happen. Otherwise, people will distrust digital financial services, and development opportunities will be lost.

We also need to make sure that women have access to the technology and aren’t being left behind at the starting gate. As we increasingly leverage mobile phones and the internet to deliver financial services, we need to watch the 10 percentage point gender gap in mobile phone ownership across developing countries, and much larger in some regions.

<strong>Q: How will we know when financial inclusion has succeeded?</strong>

A: Ultimately, I’d like to see a situation where everyone has access to affordable and transparent financial services which they can use to meet their needs — whether for saving, investing, moving money, or hedging against risk. But I’m not sure if we’ll ever get to a situation where we can just declare victory and go home. Development progress is always uneven, and there will also be groups of people excluded from appropriate financial services. I think we’ll be working on financial inclusion for a while.

Findex Lead Discusses Gender Gap, Account Usage, and More

Global Findex

Access Usage Gap

Enabling Environment

Underserved Groups

Women

Blog Post

<em>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2">CGAP Blog</a> and is re-published here with permission.</em>

As I stated in my <a href="http://cfi-blog.org/2018/08/09/financial-inclusion-is-the-glass-half-empty-or-half-full-part-1/">previous blog</a> on the debate over the latest <a href="https://globalfindex.worldbank.org/">Findex</a>, we continue to make important progress toward the goal of universal financial access. Progress is uneven and the timeline uncertain, but we have a pretty clear idea of what to do. Unfortunately, the picture is less clear on the important question of usage, and CFI is right to raise high dormancy rates as a concern in its report, “<a href="https://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/996-financial-inclusion-hype-vs-reality">Financial Inclusion: Hype vs Reality</a>.” As with the access data, however, disaggregating the figures on account usage reveals differences across countries that offer more encouraging signals than the aggregated figures, albeit with one very important caveat.

Findex shows we still have a lot of work to do on usage: 25 percent of account holders in the developing world haven’t used their accounts for a single deposit or withdrawal in the past year (as shorthand, I will refer to these as dormant accounts). Part of the challenge in the Findex data, however, is that backsliding or slow progress in a few big markets is drowning out progress in the rest of the world. The primary reason is India, which is skewing the account dormancy figures significantly because of its large population and extraordinarily high levels of inactivity — at 48 percent of account holders in 2017. If we take India out of the equation, the percentage of inactive account holders in the developing world comes down from 25 to 16 percent.

If, however, we look at the change in dormancy rates for individual countries, rather than the aggregate, a more nuanced picture emerges. Findex collected data on dormant account holders for 87 low- and middle-income countries in 2014 and 2017. Of these countries, 46 saw their dormancy rates go down by an unweighted average of 14 percentage points, 12 saw their dormancy rates go up by an average of 10 percentage points, and 29 had no discernable change (as the difference was within the 3.5 percent margin of error in either direction).

<img class="size-full wp-image-32066 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/gretabullchangesininactivityrates-1.png" alt="" width="632" height="318" />

&nbsp;

But here’s where the caveat comes in. Findex’s dormancy and usage numbers are not quite what they seem. To ensure greater accuracy in capturing mobile money accounts, respondents are not asked if they have a mobile money account; they are asked if they have used a mobile money account in the past year. In other words, Findex counts only active mobile money accounts. For financial institution accounts, respondents are asked if they have an account and then whether they have used it in the past year, so a clear distinction can be made between active and inactive accounts (see the Findex glossary for details). The net effect is to understate the number of account holders added in Sub-Saharan Africa and to overstate the activity rates for these accounts.

Given the prevalence of mobile money in Sub-Saharan Africa, this has a significant impact on Findex’s activity rates for the region. A back-of-the-envelope exercise using GSMA’s supply-side data (which correlate closely with those of Findex), helps illuminate the degree to which this affects Africa’s dormancy data. According to GSMA, there were 338 million registered mobile money accounts in Sub-Saharan Africa in 2017. If we add these accounts to the 195 million financial institution accounts from Findex, we can infer that there are roughly 533 million registered accounts in the region (the number of account holders will be lower because of people holding both mobile money and financial institution accounts, which Findex accounts for). This means that roughly 232 million accounts have been added since the last Findex, not the 72 million that you would get from doing the math with the Findex data.

That’s potentially good news, but with this increase in number of accounts comes an increase in the overall inactivity rate in Africa. Roughly 64 percent (216 million) of the mobile money accounts reported by GSMA were considered inactive. If we combine the GSMA and Findex data on inactivity, the 2017 dormancy rate in Sub-Saharan Africa shifts from 13 percent of account holders (in Findex) to 49 percent of accounts (combining the two data sets). This adjusted dormancy rate is now roughly equivalent to dormancy rates in India and represents a significant increase from the inferred rate in 2014 of 41 percent (again, based on accounts, not account holders). This adds approximately 129 million dormant accounts back into the global total, raising our developing country dormancy rate sharply back in the direction of the 25 percent mark.

<img class="size-full wp-image-32067 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-financial-accounts-dormancy-rates-1.png" alt="" width="629" height="255" />

The point of this exercise is not to provide an exact estimate of dormancy rates in Africa, but to demonstrate that we have a pretty serious usage challenge and that it is concentrated in India and Sub-Saharan Africa, where the denominator of new accounts has grown the most. Not coincidentally, they are also the two regions with the highest rates of extreme poverty. India increased access to accounts from 53 to 80 percent of adults from 2014 to 2017, adding 290 million account holders. In Africa, we have inferred that 232 million accounts were added in the same period. If the Africa data are normalized for inactivity, then India and Africa together would account for roughly 77 percent of all people accounts added between 2014 and 2017. But a large portion of them are inactive. It seems intuitive that, with the addition of accounts at this pace, there might be a delay between opening an account and using it, but we will have to wait until the next Findex to properly test this assumption.

CFI is right to point out dormancy as a problem, but it missed a big part of the challenge in its analysis: high dormancy in Sub-Saharan Africa, which barely registers in Findex, and the fact that mobile money accounts are measured differently means it is difficult to compare inactivity rates across regions. But I am not sure this means we should ignore the registered account numbers entirely, as CFI suggests. They are important because they show progress in giving people access to accounts. But activity rates matter, too, and the clear challenge now is to stimulate usage of those accounts in Africa and South Asia. This is a more complex undertaking because it involves behavior changes for new account holders and the testing of different value propositions for providers — and both of these challenges take time to address. But there are hints about how this can be done. GSMA, in its latest <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2018/05/GSMA_2017_State_of_the_Industry_Report_on_Mobile_Money_Full_Report.pdf">State of the Industry Report on Mobile Money</a>, focused on four factors that are closely associated with high activity rates: a robust agent network, enabling mobile money regulation, a digital account-based model and providers serving as integrated platforms for the wider payments ecosystem. It provides the example of MTN in Ghana, where activity rates went from 7 percent in June 2012 to 73 percent in June 2017. Understanding the factors that created the change at MTN in Ghana will provide valuable insights into what it will take to move inactivity rates, which have been stubbornly sticky in the mobile money industry since 2011.

Beyond overall account dormancy, the CFI report raises interesting questions about important use cases that deserve brief examination — savings, credit and payments.

On savings, it is disappointing that the number of survey respondents in developing countries who reported saving in the past year came down from 53 percent in 2014 to 43 percent in 2017. Unfortunately, Findex doesn’t tell us why this might be happening. While customers not perceiving the value of their accounts is one possible explanation, factors like inflation, the availability of alternatives, economic stagnation or other disruptions could be affecting the amount of money people are able to save. What is encouraging is that more of those who did save used a financial institution: this figure grew from 42 percent in 2014 to 47 percent in 2017.

On credit, I am more sanguine for a couple of reasons. First, we can’t draw any real conclusions from the Findex data. For developing countries, the number of respondents who reported borrowing in the previous year dropped from 47 to 44 percent, which is just outside the margin of error for the sample size and not a particularly strong signal. And Findex may or may not capture data on credit provided via mobile money accounts, depending on whether people consider this a loan, so it is potentially missing some digital credit borrowing. But more to the point, credit is a financial product where more isn’t necessarily better. The main constraint to accessing credit shouldn’t be whether someone has an account. It should be whether they can afford it.

Digital payments are the real story in Findex, and it is no surprise that this number is going up. Many accounts in places like India and Africa were established expressly to facilitate payments. In the developing world, the proportion of respondents who reported sending or receiving a digital payment in the past year went from 32 to 44 percent, and this growth was consistent across all markets. It makes sense. Just think about the way you use your bank account: you might save, and you may or may not have a loan for a house or a car, but you almost certainly make regular payments from your account. A mobile or low-value bank account in many ways mimics a current account. It is a store of value from which payments can be sent and received. You don’t expect to get a return on it, but you might use it to help establish a credit rating.

Payments seem to me to be a foundational product, especially for people with very little money, who may not have enough to save consistently and may not be creditworthy. Comparing payments usage in developing countries to high-income OECD countries puts this issue in perspective. In high-income OECD countries, 92 percent of respondents reported making or receiving a digital payment in the past year. The figure for low income countries was only 26 percent, a gap of 66 percentage points. The usage gaps between OECD countries and low-income countries was less pronounced for both savings and credit (45 and 49 percentage points, respectively). This is primarily because credit and savings products were not as widely used in rich countries as payments: only 56 percent of account holders reported saving in a financial institution in the past year, and only 20 percent borrowed from a financial institution (although this rose to 57 percent when credit cards were counted). The concept of “universal usage” is best applied to payments services rather than the other financial services where customers’ needs are more varied.

<img class="size-full wp-image-32068 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/greta-bull-usage-gap-oecd-and-low-income-1.png" alt="" width="617" height="365" />

For me, the jury is still out on usage. We have seen massive growth in accounts in the past three years, but dormancy rates have remained stubbornly steady, particularly in markets with rapid account growth. The trick will now be to activate all of those newly opened accounts, and we will have to wait until the 2020 Findex (and perhaps beyond) to understand whether we are simply dealing with a time lag or whether we have a bigger problem on account usage. What I would expect to see is a gradual improvement in activity rates for accounts in India and Sub-Saharan Africa, and payments will be key to that story. Payments are a gateway use case. Over time, they can create a foundation for other use cases to emerge through improved data on customer activity and by creating trust in formal financial services.

But we should not necessarily expect to see other use cases grow in proportion to payments, not least because it takes time to build data trails and the level of trust required for more habitual use of financial services. Nor should we expect it to happen quickly. Financial inclusion, as opposed to just financial access, is and has always been a long-term endeavor.

&nbsp;

Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 2)

Sub-Saharan Africa

Credit

Digital Credit

Digital Financial Services

Delivery Channels

Mobile Banking

Payments

Resilience

Financial Health

Saving

Trends

<i>This post was originally published on the <a href="http://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full?utm_source=CGAP+Reader+%2808.06.18%29&amp;utm_campaign=CGAP+Reader+%2808.06.18%29&amp;utm_medium=email">CGAP Blog</a> and is re-published here with permission.</i>

We can choose to see a glass as half empty or half full. And our perspective often has a lot to do with our initial assumptions.

Beth Rhyne and Sonja Kelly of the Center for Financial Inclusion (CFI) have generated discussion in the financial inclusion community with their paper exploring the latest <a href="https://globalfindex.worldbank.org/">Findex </a>data, titled “<a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2">Financial Inclusion Hype Versus Reality</a>.” In the paper, Rhyne and Kelly express concern that the rate of access to new accounts slowed between 2014 and 2017 and that the usage gap for those accounts appears to be growing. They also highlight stagnation in the growth of credit and a decline in savings, but an increase in the use of payments. While I have very little to disagree with in their paper, I think the financial inclusion community has a lot more cause for optimism than it makes out.

Let me state up front that it has never been my expectation that we would reach full financial inclusion by 2020. Or even that 79 percent of adults in developing countries would have an account by 2020, a prediction made by Rhyne and Kelly in their previous paper, “<a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>,” published after the release of the last Findex data set in 2015. The World Bank’s access goal is aspirational and meant to inspire action, which it clearly has. But as Rhyne and Kelly quite correctly point out, accounts are largely meaningless if people are not using them. The point of the Findex data is to help us measure progress against the overall access goal and to understand the levers that will take us to the next level. And there is plenty of food for thought on what the key levers might be in this year’s Findex.

Over the course of two blogs, I would like to offer a few reasons why I believe we have done better than Beth and Sonja think, starting with access.

While I would describe this year’s CFI report as overly pessimistic, I would say the 2015 paper was overly optimistic. The 2015 report assumed straight line increases in access, based on the rate of growth achieved between only two data points: the 2011 and 2014 Findex. While the report acknowledges that this was done to present a scenario for discussion, the net effect was to create an overly optimistic strawman. It seems obvious in hindsight that the pace of change achieved between 2011 and 2014 was not likely to be repeated. Why? Because progress doesn’t move in straight lines. New gains at the margin will be harder to reach than previous gains. This holds true at the country level and for important segments within countries.

At the country level, there is an implicit assumption in “By the Numbers” that all countries have equivalent regulations and providers willing to serve the poor. But all regulatory frameworks are not created equal, and not every provider has the same ability to serve the poor. One has only to look at the data for Sub-Saharan Africa to see this at work. Countries like Kenya, Ghana, Uganda, Tanzania and the West African Economic and Monetary Union (WAEMU) region put enabling regulatory frameworks in place and on average enjoyed a 2.5x increase in the rate of account access between 2011 and 2017, far outstripping the 43 percent increase for developing markets as a whole.

<img class=" size-full wp-image-25811 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/graph-greta-bull-cgap.png" alt="graph Greta Bull CGAP" width="624" height="245" />

Africa also demonstrates that providers and regulations matter. The continent is full of mobile network operators (MNOs) trying to mimic the success of M-PESA in Kenya. Although this did not happen overnight, MNOs have by now clearly demonstrated that they are making a measurable difference in multiple African markets. In the 2014 Findex, there were only 11 countries globally that had more than a 5 percentage point differential between access to any account (including mobile money) and access to a financial institution account only. And the gap between these two numbers in Sub-Saharan Africa was 5 percentage points. By this year’s Findex, this had grown to 28 markets, all but two of which were in Sub-Saharan Africa, and the gap grew to 10 percentage points. This differential is almost entirely attributable to the work of MNOs. According to GSMA's 2017 <a href="https://www.gsma.com/mobilefordevelopment/sotir/">State of the Industry Report on Mobile Money</a>, MNOs have added 338 million accounts in Sub-Saharan Africa, of which 122 million are active (this is corroborated by the Findex estimate of 124 million active mobile money accounts in the region). It is safe to say that MNOs have been responsible for adding the better part of 141 million accounts in Sub-Saharan Africa since 2011, representing 10 percent of new accounts globally. Given that Findex counts only active mobile money accounts, this quite significantly understates the level of new account addition in Africa compared to other regions.

But restrictive regulatory and competitive frameworks meant MNOs did not have the same opportunity everywhere. Nigeria, the continent’s largest market, has been a subject of great interest from MNOs for the past 10 years. But Nigeria has a regulatory framework that restricts the ability of MNOs to operate independently of banks, and this has had an impact on access. In contrast to the 2.5x growth in account access in the cohort of countries above, Nigeria experienced growth of only 33 percent in access to accounts from 2011 to 2017, and there is no appreciable difference between access to a financial institution account and access to any account. In the 10-country cohort, the average delta between any account and a financial institution account had grown from zero in 2011 to 21 percentage points in 2017. What’s more, the increasingly visible success of mobile money encouraged banks to expand their service offerings to the mass market. In these 10 countries, access to accounts in a financial institution grew by 52 percent, outperforming Nigeria, which grew financial institution accounts by only 30 percent. Providers and regulations clearly matter.

An additional challenge as we add accounts at the margin is delivering financial services to difficult segments. Women and rural households are particularly challenging, albeit for different reasons: women because of cultural and legal norms inhibiting access, and rural households because they are difficult and expensive for commercial providers to reach.

The gender gap remains stubbornly persistent at 9 percent in developing countries and is particularly challenging in the Middle East and North Africa region and parts of Sub-Saharan Africa and South Asia. The World Bank calculates that, of the remaining 1.7 billion unbanked, nearly half come from just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan. Bangladesh, Pakistan and Nigeria all have substantial gender gaps: 29, 28 and 24 percentage points, respectively. If in these three markets alone, access for women had grown at a rate equivalent to that experienced by men, the access numbers for 2017 would have increased by nearly 50 million, representing a 9.5 percent boost on the 515 million new account holders added in the three previous years.

For rural populations, the picture is a bit brighter. Access for rural households grew from 44 percent to 66 percent globally from 2011 to 2017, largely driven by rapid change in China and India. But Africa has maintained a stubborn 4 percent gap between access for the rural population and access for the population at large. If we could lift the roughly 61 percent of Africans who live in rural areas up to just the regional average, it would add another 20 million new accounts. If we brought them to the same level as urban Africans, it would add roughly 50 million new accounts.

Regulatory change that opens markets to increased competition and a sustained focus on equal inclusion for women and rural communities would do a lot to move us in the direction of full financial access.

For me, the glass is still half full. Meaningful financial inclusion is hard, involving a complex interplay of factors: regulatory change, viable business models and significant behavior change by new account holders. And for certain segments, cultural and legal norms and distance represent significant barriers. We have to be realistic about how long this will take. When I read the CFI report, it took me back to a time when everyone was disappointed that a new M-PESA had not emerged overnight. It didn’t. But we now have a whole slew of providers that are beginning to look like M-PESA did five years ago, sometimes in surprising places. Progress happens, just not according to our wishful time frames. On access, we have already harvested the low-hanging fruit — now the hard work truly begins.

<em><strong>What do you think? Do the Findex data present an overly rosy picture of the state of financial inclusion, or should we remain optimistic? Leave your comments below. </strong></em>

&nbsp;

&nbsp;

Financial Inclusion: Is the Glass Half Empty or Half Full? (Part 1)

Financial Service Providers

Rural Populations

Telcos

<em>This post originally appeared on <a href="https://nextbillion.net/is-financial-inclusion-stalling-the-2017-findex-results/">Next Billion's blog</a> and is reposted here with permission.
</em>
<p style="text-align: left"><img class=" size-full wp-image-25657 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-cover_fig.png" alt="geographic distribution of 3 billion people without active accounts, 2017" width="2300" height="2325" /><em>
About 3 billion people in the world either have no account or have an account that sits unused. The countries with the largest number of financially excluded people are also the highest population countries: India and China. This picture has changed little in the past three years.</em></p>
The Global Financial Inclusion Database (Findex) is a survey of the financial habits of adults in 144 countries with data from 2011, 2014 and now (2017). Governments, foundations, big financial companies and fintechs alike rely on the Findex to understand how people are using (or not using) financial services. It is the best available yardstick through which we measure global progress toward financial inclusion.
<h3>A Misleading Findex Headline</h3>
Unfortunately – as we share in our recent report, <a href="http://www.centerforfinancialinclusion.org/storage/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results.pdf" target="_blank" rel="noopener">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a> – while we see a few bright spots, the overall results in the latest survey are decidedly less exciting than they were in 2014. The World Bank, which houses the Findex, announced the 2017 results with the headline that 69 percent of the world’s adults now have bank or mobile money accounts – which represents good progress toward its target of “<a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020" target="_blank" rel="noopener">Universal Financial Access” by 2020</a>. We agree that connecting hundreds of millions of people to the formal financial system is worth celebrating: If nothing else, it serves as heartening evidence that a sustained movement involving the private and public sectors in nearly every country can meet an important global challenge.

But that headline is deeply misleading, for two reasons. First, and somewhat embarrassingly, many new accounts are simply dormant. The accounts of a fifth of reported account-holders have had zero activity in over a year – no deposits and no withdrawals. If a small shop owner has a bank account but does not use it, the account is valueless to her and a burden to the financial service provider that invested in technology, staff and infrastructure to serve her. It’s wasteful.

<img class=" size-full wp-image-25655 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig03.png" alt="Graph of percentage of account-holding population with an inactive account, 2017" width="1370" height="1746" /><em>
In 29 countries, more than one in five people have an account but have not used it in the past year. Inactivity has increased in the past few years.</em>

India accounts for the greatest number of these dormant accounts. In 2014, Prime Minister Modi launched the Pradhan Mantri Jan Dhan Yojana (Prime Minister’s People’s Money Scheme), which required banks to open millions of new accounts. The Guinness Book of World Records recognized the effort when <a href="http://www.guinnessworldrecords.com/news/2015/1/india-makes-financial-world-record-as-millions-open-new-bank-accounts" target="_blank" rel="noopener">a staggering 18 million bank accounts</a> were opened in a single week. This campaign and many related Indian government efforts show up clearly in some of the Findex results. Bank account ownership in India more than doubled since Findex began in 2011. But more than a third of those accounts appear to be idle, even using the very soft definition of “active” as one transaction in a year.
<h3>Sobering Financial Inclusion Stats in Emerging and Frontier Markets</h3>
Beyond the positive headlines, the data raise some issues: First, focusing only on active accounts, the number to remember is that across the developing world, only 48 percent of adults have accounts, whether at a financial institution or mobile money provider. But the second problem with the World Bank’s positive Findex spin is even more important than slow growth in active accounts. Savings and credit are at least as important as accounts when it comes to indicators of financial inclusion. But little or no progress is apparent in either. More precisely, since 2014, in the developing world as a whole, savings is down and credit is flat.

<img class=" size-full wp-image-25656 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig06.png" alt="Graph of saving, borrowing, and digital payments, 2011-2017 (developing countries)" width="2300" height="1446" />

<em>Credit is flat, and savings is declining, even as digital payments make significant gains.</em>

Take savings, a stepping stone to better financial health. If access to accounts is making a difference in the lives of the newly included, this should show up in more people saving. Instead, the fraction of people who saved through a formal account – 20 percent – was slightly lower than the 22 percent reported in 2014. The segment saving for retirement fell to a very low 15 percent in 2017, worrisome indeed as the global population ages.

On the credit side, the number of people borrowing from a financial institution increased very slightly in the past three years. However, the data do not provide evidence that the new and much-lauded forms of digitally delivered and big-data-based credit have substantially boosted access. Fintech innovations using algorithms, machine learning and artificial intelligence for credit scoring may revolutionize access to small loans, but as of 2017, either they are simply transforming the way credit is provided to existing groups, or they have not yet achieved transformative scale.

The lack of progress on savings and credit could help explain why the Findex responses to the question on financial resilience – whether a person can quickly come up with money needed for an emergency – also failed to show improvement.
<h3>Looking on the Bright Side</h3>
Findex results offer one important bright spot: digital payments. We are witnessing an enormous transformation in the infrastructure of banking, as more people use digital payments to send and receive money and to buy goods and services. In the developing world, 44 percent of the people surveyed had used digital payments in the past year, up solidly from 32 percent in 2014. All kinds of digital use cases are increasing, from online purchases and direct deposit of salaries to paying utility bills through an account. There is a clear and convincing trend – even if there is also a long way to go before the developing world reaches the degree of digitization common in high-income countries, where 91 percent have made such payments.

The emerging digital infrastructure may one day support the financial well-being of most of the world’s people. But we’re not there yet. The latest Findex results set the stage for the financial inclusion community to reflect and reconsider its assumptions so that everyone working in this field can better ensure that access to accounts and payments translates into active use and benefit for the 3 billion financially underserved people around the world.

&nbsp;

&nbsp;

Is Financial Inclusion Stalling? The 2017 Findex Results Raise Several Red Flags

Financial Inclusion Strategy

The World Bank's Global Findex is the most comprehensive database on how people access and use financial services in 150 countries across the world. In <em>Financial Inclusion Hype vs. Reality</em>, we examine the Findex data from our own perspective, seeking to deconstruct what it's telling us about financial inclusion progress.

This report spotlights key financial inclusion indicators, including account usage, borrowing, saving and resilience, among others, and takes an in-depth look at six countries that help tell the story of financial inclusion progress around the world. In short, we find that after correcting for account dormancy in developing countries, account growth has slowed, the access-usage gap is widening, credit is flat and savings is declining. A bright spot, however, is the proliferation in the use of digital payments.

The Findex analysis is sobering, but financial inclusion, while further away than expected, is still an achievable goal. We hope the financial inclusion community will use the 2017 Findex results to reconsider how financial inclusion initiatives are affecting usage, products and financial well-being, and to re-engage with eyes wide open as we continue pursuing the important tasks at hand.

Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results

Citi Foundation

A quantitative review of the current status of financial inclusion globally, based on the two Findex datasets and supplemented by data from the EIU Global Microscope 2014, UN, World Development Indicators, IMF, Alliance for Financial Inclusion, and the GSMA State of the Industry.
<h1>Key Findings</h1>
<h2>The world – every region, income level, and “slice” of the global population – is moving toward greater financial access.</h2>
According to the World Bank’s Global Findex data, the number of financially excluded people globally dropped from 2.5 billion to 2 billion in the three years from 2011 to 2014. At this rate, by 2020 the gap will have closed significantly, with 1 billion excluded adults remaining. With an added push, the World Bank’s goal of universal access to some type of financial account by 2020 seems within reach.
<h2>Financial exclusion will look much different in 2020 than it looks today.</h2>
Exclusion will be more hidden—in harder-to-reach population segments, in slow-growth countries, and in inadequate products that are not actively used to improve lives. Emphasis needs to turn to “leaving no one behind” and to offering services that make a real difference.
<h2>Universal financial access is a first step toward full financial inclusion.</h2>
According to CFI, Financial inclusion is a state in which everyone who can use them has access to a range of quality financial services at affordable prices, with convenience, dignity, and consumer protection, delivered by a range of providers in a stable, competitive market to financially capable clients. The purpose of promoting financial inclusion is to enable people to use financial services to better manage their lives. A fully included person is an active user of quality financial services that bring significant value to their lives. Progress on access to an account must be accompanied by further efforts to achieve deeper inclusion.
<h2>Although the number of accounts has grown, many of these accounts are not in active use.</h2>
In low and middle income countries, the percent of account holders who deposit or withdraw more than three times per month remains very low, a direct contrast to the active usage patterns seen in high income countries. Accounts in these countries tend to be limited in purpose (e.g. a vehicle to receive a salary or benefit payment which is promptly cashed out). Work is needed to make accounts more useful to more people.
<h2>Progress on inclusion requires building and maintaining an enabling ecosystem including policy, regulation, and industry infrastructure.</h2>
In recent years the world has made strides on technology change, solidified government commitment and action, and increased quality and use of public goods like credit reporting systems, physical infrastructure, and digital infrastructure. These improvements increase both access and ease of use of financial services.
<h2>Our hope is that this report provokes further questions.</h2>
Which regions are advancing faster than others and why? Which countries are moving quickly, slowly, or not at all? How significant is the contribution of mobile phones to increasing account access? Who will still be excluded in 2020, and where will they be located? How can the push to financial inclusion retain a focus on quality and value for the customer?

&nbsp;

&nbsp;

&nbsp;

Global Findex

Filter

Filter

Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results

By the Numbers: Benchmarking Progress Toward Financial Inclusion