Report

For the past 15 years, the Global Microscope team at <a href="https://impact.economist.com/" target="_blank" rel="noopener noreferrer">Economist Impact</a> (formerly part of the Economist Intelligence Unit) has collected data on the policies and regulations that governments around the world have adopted to promote an inclusive financial system. In 2021, we looked at the historical data from the countries included in the Microscope to identify the policies that drove change and have led to greater rates of account ownership.  We used the findings to develop a new assessment framework that regulators and policymakers can use to promote more accessible, usable, and safe financial systems.

As a result, the <a href="https://www.centerforfinancialinclusion.org/rethinking-the-global-microscope-for-financial-inclusion-2021-key-findings-report">2021 Global Microscope</a> is different from previous versions and poses four key questions. In this report, we discuss the policies that have driven change, the priorities to keep in mind for the future, the tools that will help achieve these goals, and the unique ways these priorities and tools apply across different parts of the financial system. The Global Microscope work is supported by CFI, the Bill &amp; Melinda Gates Foundation, and IDB LAB.
<h1>Question 1: Looking Back, What Policies Have Driven Change?</h1>
A country’s overall Global Microscope score historically has been a composite of five categories, each measuring a different aspect of the enabling environment: Government and Policy; Stability and Integrity; Products and Outlets; Consumer Protection; and Infrastructure. This year, our regression analysis found that the overall Global Microscope scores have a positive relationship with account ownership. The correlation was mostly driven by two of the five categories: infrastructure and consumer protection – revealing that more extensive infrastructure and strong consumer protection propel financial inclusion. Within the category of infrastructure, connectivity proved to be a highly significant indicator of account ownership and digital IDs were also moderately significant.
<blockquote class="pullquote--right">The speed and magnitude of reform adoption significantly impact financial inclusion.</blockquote>
In line with findings from a <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/31179/WPS8711.pdf?sequence=1" target="_blank" rel="noopener noreferrer">World Bank study</a>, our analysis also found that the speed and magnitude of reform adoption significantly impact financial inclusion. Broad financial inclusion strategies have helped drive fast and concerted efforts to create more inclusive financial systems and are another indicator that demonstrated a highly significant relationship with account ownership.

Our analysis also allowed us to identify the leading countries enacting meaningful change. Argentina, China, and Jordan have had the greatest leaps in scores since the Microscope began its global coverage in 2014. Tanzania, Côte d’Ivoire, and Costa Rica have seen the greatest improvements since we began covering the digital financial services revolution in 2018.
<h1>Question 2: Looking Ahead, What Policies Should We Keep in Mind for the Future?</h1>
The new Microscope framework focuses on capturing the main regulations, policies, and infrastructure investments that governments should prioritize over the coming years. Instead of aggregating all data under one score, the new framework allows users to identify the enablers of three desirable outcomes: accessibility, usability, and safety.
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">The accessibility category looks at policies and regulations that seek to increase the reach and volume of financial services to low-income customers.</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">The usability category looks at policies linked to the quality of products and customer engagement.</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">The safety category looks at challenges arising because of the spread of digital financial services and threats to the integrity and stability of the financial system, which are part of the core mandate of financial regulators.  </li>
</ul>
These measures are not necessarily correlated with increased access to financial services but are key to creating a trustworthy financial system.

Identifying What Works: 15 Years of Microscope Data Reveal Key Policy Drivers of Financial Inclusion

The Global Microscope has assessed the enabling environment for financial inclusion across 55 countries since 2007. This report summarizes the key findings of an assessment of the Global Microscope index’s existing data from 2007 to 2020. This was aimed at understanding the relationship between key financial inclusion enablers (ie, policies, regulation, and infrastructure) and financial inclusion outcomes.

This report discusses the policies that have driven change, the priorities to keep in mind for the future, the tools that will help achieve these goals, and the unique ways these priorities and tools apply across different parts of the financial system. Below are key findings from the 2021 report:
<ul>
 	<li>A higher overall Global Microscope score showed a positive relationship with the number of accounts with formal financial institutions and mobile money providers among the population.</li>
 	<li>The infrastructure domain had the strongest relation to account ownership, documenting the positive effects on inclusion from policies facilitating the expansion of payment systems, strong digital identification regimes, widespread connectivity, and robust credit information systems. The other four domains are government and policy support, stability and integrity, products and outlets, and consumer protection.</li>
 	<li>Consumer protection was also positively linked to the prevalence of bank accounts, underscoring the importance of measures to ensure that financial consumers are treated fairly across the range of distribution channels and products.</li>
 	<li>The magnitude and quality of regulatory implementation significantly impacts financial inclusion. Larger regulatory improvements were associated with increasingly larger gains in account ownership.</li>
</ul>
The Global Microscope work is supported by CFI, the Bill &amp; Melinda Gates Foundation, and IDB LAB.

Rethinking the Global Microscope for Financial Inclusion: 2021 Key Findings Report

Rebuilding the post-COVID economy will mean more than preserving powerful players in global and national economies; it will mean saving the small businesses and ensuring employment for workers in the informal and formal sectors. The Global Microscope, which assesses the enabling environment for financial inclusion across five categories and 55 countries, explores the role that financial inclusion has played in policymakers’ crisis response, providing data on how the 55 countries have leveraged their financial infrastructures to support vulnerable individuals, small businesses, and the financial providers that serve poor households.

Below are some key takeaways from the 2020 edition:
<ul>
 	<li>The overall enabling environment for financial inclusion improved as a result of governments’ efforts to reach unbanked populations during the pandemic. Colombia, Peru, Uruguay, Argentina and Mexico lead the global ranking.</li>
 	<li>Investments in digital infrastructure have paid off, with 44 of the 55 countries in scope having used cash transfers to support vulnerable parts of the population</li>
 	<li>Digital IDs can facilitate verification for cash transfers, data integration is needed to target beneficiaries and ensure that marginalized segments of the population are not excluded</li>
 	<li>The pandemic necessitated changes in regulations around remote banking, with several countries relaxing e-KYC rules to facilitate remote account opening, paving the road to the development of a digital, inclusive financial system</li>
 	<li>Financial institutions that serve the poor face liquidity constraints impacting credit availability for the poor, as not all governments were able to address them while rolling out economic stimulus packages</li>
 	<li>Financial authorities should adapt to protect consumers from emerging risks, such as ones posed by the onset of the pandemic and the associated rise in cases of financial fraud</li>
</ul>
The Global Microscope is produced with support from EIU’s partnerships with CFI, the Bill &amp; Melinda Gates Foundation, IDB LAB and IDB Invest.

Global Microscope 2020

The Economist Intelligence Unit’s (EIU) <a href="https://www.centerforfinancialinclusion.org/global-microscope-2019">Global Microscope 2019</a> was updated with 11 indicators that shed light on a country’s likelihood to create a more enabling environment for women’s financial inclusion. While the Microscope doesn’t rank the countries on these indicators, the premise is that countries with gender-oriented policies or infrastructure in place are more likely to be enabling for women’s financial inclusion. These indicators can be subcategorized into four buckets: policy,  constraints, discrimination, and infrastructure:

<a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/01/Screen-Shot-2020-01-06-at-12.42.42-PM-1.png"><img class="aligncenter size-full wp-image-37569" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/01/Screen-Shot-2020-01-06-at-12.42.42-PM-1.png" alt="gender indicators global microscope 2019" width="800" height="574" /></a>

Country-level data reveals that the index doesn’t actually help us get closer to understanding which policies drive financial inclusion for women, however.

Let’s use the Philippines and Bangladesh as examples. Both countries have three of the Microscope indicators in place. Yet the Philippines is one of the few countries in the world where women’s access to financial services exceeds that of men (39 percent for women versus 30 percent for men, according to the <a href="https://globalfindex.worldbank.org/">Global Findex 2017</a>). On the other hand, Bangladesh has one of the largest gender gaps in access in the world at over 28 percent (64 percent for men versus 36 percent for women). The fact that such different outcomes are measured equally using Microscope’s index signals that women’s financial inclusion requires much more than what is captured by these indicators.

The reality is that what may appear to be a barrier in one country for women’s financial inclusion may not be a barrier in another. Let’s look at one of the indicators: diversity programs for non-banking or correspondent agents. This indicator is highly relevant for countries where norms may limit women’s ability to engage with male agents but this issue wouldn’t be a direct barrier in cultures where women have freedom to move and engage with whomever they choose. Thus, its existence or lack thereof may or may not have an affect on women’s financial inclusion in that particular country.
<blockquote>What may appear to be a barrier in one country for women’s financial inclusion may not be a barrier in another.</blockquote>
Conversely, policy enablers that may exist in one country may be missing from another and may not be captured by these 11 indicators. Many countries, for example, have begun to shift G2P payments into women’s accounts (<a href="https://www.centerforfinancialinclusion.org/g2p-in-colombia-where-to-next-for-the-familias-en-accion-program">Colombia</a> is a successful example of this). This approach has created incentives for women to open formal bank accounts and gives them reasons to use them. This specific policy enabler isn’t identified as one of the indicators but clearly its existence in a market would facilitate women’s financial inclusion.

Many other factors that would influence the differences in results between countries such as the Philippines and Bangladesh include women’s labor force participation, women’s level of literacy and women’s roles as migrant workers. All of these factors would increase the demand side reasons for women to engage with the formal financial system. Labor force participation translates into receipt of a salary and often workers need a place to store those salaries and to make payments. The same is true for migrant laborers who often need the means to remit money to their families. Literacy is also associated with higher demand for financial services: the more education one has the more likely one will use formal financial channels. This is borne out in the academic literature; see, for example, this <a href="http://people.bu.edu/kajayi/AjayiRoss_EducationFinancialInclusion.pdf">study</a> and this <a href="https://www.hbs.edu/faculty/Publication Files/cps-smart money 2013 august_d4fb3555-e078-415a-8b20-aa50dc878205.pdf">study</a>. In the case of the Philippines, women’s labor force participation averages around 47 percent, whereas women’s participation in Bangladesh is only 36 percent. In the Philippines, literacy is essentially universal at <a href="https://psa.gov.ph/content/literacy-men-and-women-philippines-results-2008-functional-literacy-education-and-mass-media">96 percent for women and 95 percent for men</a>. In Bangladesh, women’s literacy is 70 percent as compared to 75 percent for men. Finally, in the Philippines, in 2018 there were over <a href="https://psa.gov.ph/content/statistical-tables-overseas-filipino-workers-ofw-2018">1.2 million migrant female workers as compared to 1 million men</a>, while in Bangladesh, women make up a very small share of the migrant labor force at only <a href="https://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/---ilo-dhaka/documents/publication/wcms_310411.pdf">13 percent as of 2013</a>. In light of these very different demand-side issues, it’s striking that financial access for women in Bangladesh is nearly the same as that in the Philippines: 36 percent compared to 39 percent. What’s Bangladesh doing right despite these headwinds, and what can the Philippines do more to encourage usage of the formal financial system by both men and women?
<blockquote>Each country will need to define the conditions that will improve women’s financial inclusion.</blockquote>
Being able to identify a narrow set of policies or access to infrastructure that would promote women’s financial inclusion is appealing, and the EIU should be commended for making the effort to identify a set of potential policies. But the reality is that each country will need to define the conditions that will improve women’s financial inclusion based on barriers and opportunities unique to each country-wide market.

Advancing Women’s Financial Inclusion: What Does the Global Microscope Tell Us?

The Economist Intelligence Unit’s <a href="https://centerforfinancialinclusion.org/global-microscope-2019/">Global Microscope</a> is a robust data set that offers a deep dive into the policies and regulations that are considered important for financial inclusion in 55 countries. The indicators are derived from an expert-based consultation process to identify the most likely policy and regulatory conditions under which financial access and usage is likely to thrive.

The Microscope’s approach is to bundle the indicators into an index so that performance across countries can be compared easily. It also allows the EIU to simplify a set of complex conditions in which no one indicator can sufficiently signal a country’s environment for financial inclusion. Using an index approach to aggregate the indicators has both positive and negative implications. On the positive side, it simplifies a complex set of variables into a score than can easily be understood: a low score is bad and a high score is good. An index also creates a certain level of competition among countries that are covered in the index. Like with other indices that use this approach, such as <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf">Doing Business</a>, many countries put resources behind improving their score year in and year out. The ranking serves as motivation for action.
<blockquote>An index allows the EIU to simplify complex conditions in which no one indicator can signal the environment for financial inclusion.</blockquote>
On the other hand, there are several drawbacks with the use of indices for something as complex as the policy and regulatory environment in a country for financial inclusion. The first drawback is squaring the results with the evidence on the ground. According to the EIU’s Microscope, Colombia has the highest score, 82, in the enabling policy and infrastructure index, yet Colombia’s access figures from the <a href="https://globalfindex.worldbank.org/">2017 Global Findex</a> shows that the country’s financial access is only 46 percent for adults over 15. This is significantly lower than the global average of 69 percent and lower than the 63 percent average in developing countries. A country like Bangladesh is ranked very low in the Microscope (38), but has higher access figures than Colombia, reaching 50 percent in the latest Findex round.

So why is there such a disconnect between a country’s ranking in the Microscope with its access and usage data from Findex? It shouldn’t surprise anyone that the reality on the ground can lag behind regulations. For example, while the US has equal-rights legislation on the books, experience among minorities in the US confirms frequent and continued discrimination in practice. So it isn’t a surprise that even though some countries have favorable policy and regulatory conditions for financial inclusion, there may be cultural issues or social norms that aren’t in line with the regulatory change and may require time and additional effort to change. Change may also require enforcement or supervisory capacity to ensure that there’s compliance with policies and regulations.

But perhaps more importantly, policies and regulations are only part of the financial system, and financial service providers and the users of the financial system have many other influences on their choices and behaviors. If we’re only looking at the policy and regulatory viewpoint, we’re not seeing the full picture of what drives outcomes on the ground.
<blockquote>If we’re only looking at the policy and regulatory viewpoint, we’re not seeing the full picture of what drives outcomes on the ground.</blockquote>
The second drawback is lack of clarity on which policies actually matter. The Microscope tracks five domains with a total of 69 indicators. Each of these indicators has an equal weight in the score. But is it true that each indicator is equally likely to drive inclusion? The Microscope doesn’t do enough to help countries prioritize from among the 69 indicators it tracks. For example, in the new indicators on women’s financial inclusion, variables such as “non-discriminatory access to IDs” and “differences in access to a mobile phone between men and women” are included as indicators. How important is one or the other towards women’s financial inclusion? When everything is important, nothing is. The index may be inadvertently contributing to either paralysis or misguided prioritization by policy makers.
<blockquote>The Microscope doesn’t do enough to help countries prioritize from among its 69 indicators.</blockquote>
Regulators and policy makers are looking for evidence on what works to drive financial inclusion. This is where there is potential for researchers and the EIU to take this important data set and do additional analysis to identify which of the indicators correlate with results on the ground. The <a href="http://documents.worldbank.org/curated/en/926401524803880673/pdf/125804-PUB-REPLACEMENT-PUBLIC.pdf">World Bank’s Women, Business and the Law 2018</a> publication did a deep dive on financial inclusion which did this type of analysis linked to women’s financial inclusion, for example.

While correlations have their own set of limitations, they are nonetheless a step closer to helping us unpack which policies and regulations are priorities to drive inclusion. In the next round of the Global Microscope, we’d like to see less emphasis on rankings and much more effort devoted to helping policy makers understand which policies and regulations should be prioritized.

What’s in a Score? Reconciling Financial Access and Usage With the Microscope Rankings

Regulators play a significant role in catalyzing or impeding a country’s progress toward financial inclusion. By evaluating five domains of the regulatory environments in 55 countries (i.e., government and policy support, stability and integrity, products and outlets, consumer protection and infrastructure), the Global Microscope identifies each country’s current policies and regulations and notes which are likely to create an enabling environment for financial inclusion.

The 2019 Global Microscope features 11 new gender-focused indicators that measure financial inclusion for both women and men. These new indicators can help policymakers identify areas that could potentially improve women’s ability to access and use the financial tools they need to thrive.

The Global Microscope is produced by The Economist Intelligence Unit with policy guidance and financial support from leading organizations in the field, including CFI.
<h2>Major Findings</h2>
<ul>
 	<li>The enabling environment for financial inclusion has improved in the 55 countries covered in the Global Microscope 2019. Colombia, Peru, and Uruguay maintained the top rankings again this year. Likewise, the countries covered in the study’s regional analysis of Latin America and the Caribbean maintained the most favorable regulatory environments. These findings are at odds with access and usage data that show that Latin America and the Caribbean have recently fallen behind other regions. This points to the limitations that policies play in driving outcomes. They can contribute, but policies alone are insufficient in driving desired outcomes.</li>
 	<li>Practical impediments – such as limited access to identification, the Internet, and/or mobile phones – restrict women’s ability to use digital financial services.</li>
 	<li>Argentina, Costa Rica, Honduras, Russia, and other countries continue to adopt financial inclusion strategies and incorporate digital approaches to foster inclusion. In the past, national-level programs have led to the most progress over the short and long term.</li>
 	<li>Consumer protection and privacy laws are evolving to respond to the unique challenges that fintech presents, but few countries have updated their consumer protection regulations to account for the risks posed by digital players.</li>
</ul>
<h2>Calls to Action</h2>
Policymakers must ensure that both women and men are enabled to utilize and empowered benefit from greater financial inclusion. As the landscape for financial inclusion continues to evolve, and as financial service providers adopt new technologies and approaches, governments will need to implement policies to ensure that potential users develop the necessary capabilities and possess key enablers to access and use these products (such as national ID and mobile phones). This includes developing and implementing policies specifically designed to address gender disparities in access to these enablers.

Governments must ensure their national strategies do not worsen the gender gap. As financial inclusion policy shifts its focus towards the promotion of digital financial services, regulators and policymakers must address this digital gender gap or risk contributing to even greater disparities in access to financial services between women and men. Although nearly four-fifths of countries in the Microscope have strategies or initiatives to promote digital literacy, only one-fifth incorporate a gender approach into these programs.

Global Microscope 2019: The Enabling Environment for Financial Inclusion

Consumer protection is essential for ensuring that financial inclusion works for consumers and results in a healthy sector. That’s why the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> includes indicators on the state of consumer protection regulation in its overall assessment of a country’s enabling environment. The <a href="https://www.smartcampaign.org/">Smart Campaign’s</a> expertise in consumer protection give its team an informed perspective on these issue. We sat down with Isabelle Barrès to get deeper perspectives on this relationship and her general reactions to the Microscope.
<h4>Did the Microscope reveal any surprises from a consumer protection perspective?</h4>
What stood out to me was the way consumer protection cuts across all of the domains in the Microscope framework. Indeed, while specific consumer protection and privacy regulations are key, as I look through the Microscope indicators, I’m struck by how nearly all of them contribute to minimizing consumer harm.

For instance, a favorable environment for consumer protection requires government and policy support and a solid infrastructure. Consumers stand a better chance of being protected if financial literacy programs enable them to make more informed choices and advocate for their rights. Thoughtful product design is critical to mitigate risks – for example in designing a loan product, it’s important to build in restrictions against excessive borrowing. The way agents and outlets are supervised can make a critical difference in the way clients are treated.

This 2018 Microscope has increased its weighting on cybersecurity one of the rising risks to consumers and the industry, which the Smart Campaign is tracking.
<h4>How do you get a robust regulating environment that doesn’t stand in the way of new players? Where’s the balance?</h4>
The Smart Campaign helped draft a <a href="https://responsiblefinancialinclusion.org/?page_id=2353">model legal framework</a> – a guideline for regulators – largely for this purpose. It builds on existing <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPractices-WebFinal.pdf?sequence=1&amp;isAllowed=y">guidelines</a>, <a href="https://clmr.unsw.edu.au/sites/default/files/content_files/Regulatory_Diagnostic_Toolkit-June 2018.pdf">tools</a>, and <a href="https://www.itu.int/en/publications/Documents/tsb/2017-DFS-ConsumerExperienceProtection/mobile/index.html#p=1">recommendations</a>, and is drafted in a way that leaves room for regulators to factor in the level of competition in the market, the types of players, the level of maturity, prep regulation to support a balance between regulation and innovation. In developing standards for digital credit providers, we see a number of practices that, if we were looking at a traditional provider, we would have been very critical of (e.g., portfolio quality and pricing). While still very much focused on these issues, we recognize that many of these models are nascent and providers are still refining their models and need time to innovate and adapt. We are therefore providing space for early stage providers to innovate rather than have more stringent guidelines from the get go, as long as risks to clients are mitigated.
<h4>The Microscope states that, "in the best-performing countries, traditional consumer protections are coupled with data privacy and cybersecurity safeguards... strong performance on traditional consumer protection (countries that scored greater than 80) does not necessarily indicate that a country has a sufficient framework for digital consumer protection." What does this mean to you?</h4>
That means that countries have traditional consumer protections in place, but these are not sufficient to deal with newly arising risks. So just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.
<blockquote>Just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.</blockquote>
The main adaptations that we see needed for an adequate framework for consumer protection in a digital world are the need to account for 1) the increased reliance on agent networks for sales and service; 2) the reliance on technology and technical interfaces and the client risks linked to data collection, use and storage; and 3) more complex value chains. These are taken into consideration in the current <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">update</a> to the Client Protection Standards for digital services.
<h4>Would the countries that have done well in traditional consumer protection be well positioned to adopt digital consumer protection?</h4>
In some ways, yes. Digital consumer protection builds off of traditional consumer protection. The “traditional” consumer protection dimensions (appropriate product and delivery design, prevention of over indebtedness, transparency, responsible pricing, fair treatment, recourse) are still relevant, with adaptations needed for the new risks that come with low touch/ high tech models. The biggest changes from the digital revolution that affect consumer protection are linked to data: data privacy, data security and data use, and the confluence of industries that used to work independently: technology and finance. While data privacy and protection was part of the traditional consumer protection, the extent to which the data protection frameworks need to be extended to cover consumer risks in a digital world is considerable. Countries that have strong data protection policies and enforcement (e.g., The Philippines, Colombia) are getting a head start to address consumer protection issues in a digital world.

The extent to which countries are well positioned to adopt digital consumer protection also depends on the extent to which they embrace innovation, the extent to which non financial digital providers can be integrated to the financial infrastructure, and the extent to which telcos and banking regulators cooperate. As highlighted by the Microscope, The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry. Their work under the <a href="https://www.r2accelerator.org/bsp/">R2A program</a> in developing and testing technology based solutions that can support good consumer protection is an interesting example to follow.
<blockquote>The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry.</blockquote>
<h4>Are there any country-level assessments that especially caught your attention?</h4>
For Cambodia, in terms of key barriers to financial inclusion, the Microscope authors worry about the expansion in the number of MFIs and MBIs, and it does reference the surge of refinanced loans. In our work, we’re seeing self-organization efforts in response to a surge of lending and a fear of over-indebtedness that has been well documented through <a href="https://mimosaindex.org/living-on-the-edge-is-it-worth-it/">Mimosa</a>. We see ongoing efforts from investors to share information on their portfolios. There are industry efforts in the form of lending guidelines that have started. It’s an example of an industry-based initiative that is complementing what regulators are doing.

Kenya is another example. The Microscope highlights the Consumer Protection Act, which aims to protect consumers from aggressive lending. Yet, regulations are not yet going far enough, because of the proliferation of digital lenders that aren’t regulated. It would be great if the Microscope analysis could dig deeper into the institutional landscape.

Read the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> and let us know what you think!

Digital Standards and Nascent Business Models: Smart Campaign Reacts to The Global Microscope

In her <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-past-present-and-future">remarks</a> at CFI’s tenth anniversary symposium, Elisabeth Rhyne mentioned that more than technology itself, the growing number and variety of players involved in the financial inclusion space is the greatest change the sector has seen in the past decade.

This view resonated with the Global Microscope team. Earlier this year, we reviewed the framework for our annual ranking of countries on the enabling environment for financial inclusion. As we created a revised framework, we saw that technology is only part of the story: the diversity of stakeholders also presents a significant change from previous editions.
<blockquote>We saw that technology is only part of the story: the diversity of stakeholders also presents a significant change from previous editions.</blockquote>
The <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> started in 2007 as a study of the regulation of microfinance institutions (MFIs), but today it must address the enabling environment for MFIs, banks, insurance providers, money issuers, cross-border payment providers, fintechs, and banking agents.

There is no clear roadmap to navigate this broadening panorama, and from a regulator’s perspective, this might seem daunting. The temptation might be to limit the actors in the market and continue to operate business as usual. However, the diversity of players is actually key to creating more inclusive ecosystems.

In their recent essay “<a href="https://www.centerforfinancialinclusion.org/getting-policies-right-in-the-digital-era-competition-and-innovation-as-policy-objectives">Getting Policies right in the Digital Era</a>,” Ariadne Plaitakis and Simone di Castri argue that competition and innovation should be added to the policy mandates of financial authorities. When we compare the findings of the 2018 Microscope, which measure regulatory and policy inputs for financial inclusion, to financial inclusion outcomes, we see that greater competition is an important driver in the adoption of digital financial services.

The Microscope evaluated the regulatory frameworks of 55 countries to determine among other things, what are the legal market entry restrictions for e-money issuers. Most countries allow a wide variety of providers, including mobile transfer operators (MTOs), to obtain a license to issue e-money. However, in some countries (16 out of 55) authorities still restrict the type of players that can enter the market, which means that mobile providers have to partner with banks to enter the market.

When we compared the Microscope’s analysis of market entry barriers for e-money issuers to the results of the Global Findex, we found that countries that do not restrict the type of provider that can issue e-money have much higher rates of e-money adoption. The average percentage of mobile money accounts in less restrictive countries is 18 percent compared to a 9 percent average in countries where e-money issuers have to partner with banks. These results give a clear message: let a wide variety of providers operate.

As MTOs consolidate as dominant players in the provision of e-money, promoting interoperability is another key role that regulators can assume to foster greater competition. Peru and Indonesia, two of the Microscope’s top five countries, have made interoperability a cornerstone of their financial inclusion strategies.

Interoperability was also identified as major driver for the uptake of e-money in Madagascar, one of the “surge countries” identified by CFI in its most recent report on the Global Findex. In 2016, Madagascar became the second African country, after Tanzania, to roll out interoperable e-money services. Interoperability also exists at the agent network level, which allows agents to perform transactions for multiple operators.

Between 2014 and 2017, the percentage of adults with access to an account doubled, growing from nine percent to 18 percent. The percentage of adults with a mobile money account grew from four to 12 percent and the percentage of adults who had made or received a digital payment increased from five to 15 percent. The ease to transfer money created by interoperability has been, according to our interviewees, a major driver for financial inclusion in the country. We see a second key message for regulators: lead the market toward interoperability.

The regulatory approach that allowed e-money to flourish has been described as a “test and learn” approach. This means that regulatory authorities allowed these products to evolve with light-touch or ad-hoc regulation. In order to foster fintech innovation, some countries, including Argentina and China, have adopted an even more liberal “wait and see” approach, letting innovative products operate freely in the market. This flexibility has enabled innovation and has become a guiding principle to regulate digital financial services. In 36 of the Microscope countries, regulators have opted to let innovative products grow before setting the rules of the sector.

However, <a href="https://www.cgap.org/blog/competition-mobile-financial-services-move-past-test-learn">evidence from Kenya and Tanzania</a>, suggest that as emerging services mature, continuing the “test and learn” model can have adverse consequences for competition. For example, in Kenya, e-money providers were not subject to the same transparency rules as other financial services providers until 2016. Transparency requirements encourage providers to compete on quality and price and promote the entrance of new players that can bring lower costs. In the Global Microscope we found variations in market conduct rules between traditional and digital financial services in 22 out of 55 countries. A third key message emerges: keep market conduct rules consistent between traditional and emerging services.

The ascent of e-money gives regulators and policymakers useful insights that can guide decision making as they navigate an increasingly complex landscape. Technology has radically transformed the financial services industry and has a great potential to make services more accessible and tailored to users needs. However, as this year´s Microscope findings suggest, a greater variety of providers can help bring these innovations to populations that have been traditionally underserved.

Competition in Digital Financial Services: 3 Key Insights from the 2018 Global Microscope

In the 2018 Global Microscope rankings of countries whose institutional and policy environments support financial inclusion, there is one newcomer among the prized top five: Uruguay checks in as third in the overall rankings. Only a few years ago – in 2014 – Uruguay languished in fourteenth place.

Changes in both Uruguay and the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> itself account for this rapid jump. Uruguay is energetically implementing a financial inclusion playbook that seems to be taken directly from the 2018 Microscope’s increased focus on digital transformation. Since some of my favorite places and some of my favorite people are in Uruguay, I’m happy to have a chance to spotlight this small country that lately seems to be getting everything right.

Uruguay’s advance in financial inclusion exemplifies what a government-led approach can do if it is in sync with local capabilities. The government took a major step in 2014 when its new Law on Financial Inclusion strongly promoted a shift in the economy to digital payments. Among provisions too numerous to list here, two transformational measures stand out: first, the law requires employers to pay salaries electronically into accounts (to have been accomplished by mid-2017). Even gauchos working on cattle ranches are paid that way – or at least that’s what’s supposed to have happened.

Second, the law incentivizes the use of debit and credit cards through a 2 percent reduction in VAT (sales tax) for card-based purchases. With those changes in place, the average Uruguayan employee now receives money into an account and has a good reason to pay for things with a card associated with that account. These changes put Uruguayans well on the path toward a cash-light economy.

It’s not popular among everyone, however. “I’m fed up with this financial inclusion stuff,” complained my friend Mark. “I can’t buy gas at night anymore. The gas stations won’t accept cash.”

“What about using your credit card?” I asked him.

“I don’t trust the gas stations, so I’m not going to hand them my credit card,” he replied. Rather than switching, he simply stopped buying gas in the evening.

But even getting cash can be a problem. So many ATM robberies have taken place that the banks put less cash in them. “You have to go to the cash machine right after it has been filled,” he says.

Not all Uruguayans are as stubborn about cash as Mark. In fact, the Global Findex records that account ownership among adults there rose from 24 percent in 2011 to 64 percent in 2017, and the percent of people making or receiving electronic payments rose from 37 percent in 2014 to 59 percent in 2017.

Uruguay’s ability to make dramatic leaps is predicated on a number of enabling conditions that make the policy shifts actionable. The country already had widespread identification cards, well-functioning credit bureaus, and ubiquitous cellular connectivity. In one sense the digital financial inclusion push can be seen as a part of a larger digital drive covering realms from communications to education to finance. And in the private sector, the shift is enabled by a lively marketplace of software and fintech firms, some of which have organized into the Chamber of Fintech for dialogue with government. Government encourages innovation through test and learn approaches to regulation, and by avoiding placing barriers on the types of organizations that can enter the digital finance arena.

The Uruguayan approach to financial inclusion is focused on driving cash out of the system, more, perhaps than on actually extending financial services to the previously excluded. In the Microscope ratings, Uruguay’s lowest scores are on consumer protection, and the Findex results reveal a fairly significant gap in the inclusion of lower income people as well as a rural-urban divide. Most of the ranch hands on Mark’s farm cash out their earnings immediately to use cash in the local shops, so inclusion hasn’t yet become meaningful for them.

Uruguay’s experience underscores the need for the policy environment to mesh with the existing opportunities in the private sector. If policy gets out too far ahead of the private sector, even the most far-sighted policy may elicit little response from service providers. But as Chris Skinner argued in one of CFI’s <a href="https://www.centerforfinancialinclusion.org/series/getting-inclusion-right">10 Essays for 10 Years on Getting Inclusion Right</a>, when policy provides a well-conceived nudge that harmonizes with pre-conditions in the market, rapid change can follow. Hats off to Uruguay for putting it all together and to the Microscope for documenting the progress.

Uruguay Leaps 9 Spots in the Global Microscope Rankings

The Global Microscope is a benchmarking index that assesses the enabling environment for financial inclusion in 55 countries. Now in its 11th year, the Microscope is the global standard for financial inclusion policy in developing economies. The 2018 Global Microscope on Financial Inclusion, with a revised research framework, offers a forward-looking focus on the digital financial services now and in the future, and the critical role for financial inclusion envisioned in the Sustainable Development Goals.

The 2018 Global Microscope sets a model for an enabling environment for financial inclusion across five domains: government and policy support, stability and integrity, products and outlets, consumer protection, and infrastructure. The Microscope evaluates the regulatory and policy environment for key players in the financial inclusion space including banks, non-bank financial institutions, e-money issuers and cross-border payment providers. It also focuses on the role of inclusive insurance, financial agents, financial technology (fintech) firms, and credit information providers.

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organizations in the field, including CFI.

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Global Microscope 2018: The Enabling Environment for Financial Inclusion and the Expansion of Digital Financial Services

Consumer Protection

Enabling Environment

Policy, Regulation and Government Initiatives

Challenges and Crises

Financial Inclusion Strategy

Trends

Global Microscope

<h2>Latin America and the Caribbean (LAC) and East and South Asia have the most conducive environments for financial inclusion. India stands out for the most progress in the last three years and is now ranked third globally.</h2>
Financial inclusion is now on the global agenda and is understood to be a critical foundation in the improvement of livelihoods, according to The Economist Intelligence Unit's (EIU) 2016 Global Microscope on Financial Inclusion. More than half of the 55 countries studied improved their enabling environment for financial inclusion in all areas in the past year. This year, India joins longtime leaders Peru, Colombia, and the Philippines at the top of the international country rankings.

The Microscope, a project of the EIU with technical support and oversight from the Center for Financial Inclusion at Accion, the Multilateral Investment Fund at the Inter-American Development Bank, and the MetLife Foundation, is intended to benchmark national progress on financial inclusion and catalyze reform. The Global Microscope 2016 assesses the regulatory ecosystem for financial inclusion by evaluating 12 indicators across a range of developing economies in East and South Asia, Eastern Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, and Sub-Saharan Africa. Now in its tenth edition, the Microscope has evolved from covering microfinance in Latin America and the Caribbean to a global study of the broader financial inclusion ecosystem. It is also one of the few benchmarking tools spanning this significant length of time.

The index results show steady but modest improvements compared to last year. The average score for the 55 countries has increased (from 48 points to 49 points, where 100 is best) and once again only one country in 2016 has a score that is 25 points or lower. However, for the first time in seven years, Peru does not occupy the top spot alone: it has been joined by Colombia, last year’s number two country. While these two leaders continue to perform highly and in Colombia’s case to strengthen certain areas, the more substantial shift and interesting story is about India. India is now firmly among the leaders, having tied the Philippines for third position overall. India, Costa Rica, Honduras and Egypt have made the biggest gains over the last three editions of the Microscope and have policies in place to continue this success.

Consistent with the overall performance of the past two years, Latin America and the Caribbean (LAC) and East and South Asia tie for the highest overall scores regionally, with LAC countries capturing four of the top ten spots by rank. Eastern Europe and Central Asia and Sub-Saharan Africa also tie for second place in the regional rankings this year. The Middle East and North Africa (MENA) region posted the lowest overall score in the index.

In addition to long-term commitment to broad financial inclusion strategy and policy, digitization of financial services holds great promise for improving access to finance. Overall, for the indicator on electronic payments, the average of countries' scores rose by a total of 14 points, or by 32%, between 2014 and 2016. This suggests widespread, positive action to create a regulatory environment more conducive to digital economic activity. Governments are also doing more to embed digitization by using it in their transfer payment programs.   There continue to be challenges facing the financial inclusion environment. Much work remains to be done, particularly in the areas of government support for financial inclusion, de-risking and client protection. Insurance for low income populations continues to be a persistent challenge, and stakeholders need to focus on usage of financial services, now that access is well underway.
<ul>
 	<li>Download the <a class="wf_file" href="http://www.centerforfinancialinclusion.org/storage/documents/EIU_Microscope_2016_WEBr2_2016.11.03.pdf">2016 Global Microscope in English (PDF)</a></li>
 	<li>Download the <a class="wf_file" href="http://www.centerforfinancialinclusion.org/storage/documents/EIU_Microscope_2016_SP_WEBr2_2016.11.03.pdf">2016 Global Microscope in Spanish (PDF)</a></li>
 	<li>Download the <a class="wf_file" href="http://www.centerforfinancialinclusion.org/storage/documents/EIU_Microscope_2016_Bibliography_04.pdf">2016 Global Microscope Bibliography (PDF)</a></li>
 	<li>Download the <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/microscope-2016-v0-1-9.xlsm">2016 Global Microscope Benchmarking Model (Excel)</a></li>
</ul>
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Global Microscope 2016: The Enabling Environment for Financial Inclusion

<h2>Latin America and the Caribbean (LAC) and East and South Asia have the most conducive environments for financial inclusion; India, Haiti, and Egypt are among the most improved countries this year.
</h2>
Access to affordable, diverse financial services is expanding and deepening in many parts of the world, according to The Economist Intelligence Unit's (EIU) 2015 Global Microscope on Financial Inclusion. Two-thirds of the 55 countries studied have improved their enabling environment for financial inclusion in all areas in the past year. Peru, Colombia, and the Philippines remain at the forefront of the international country rankings.

Developed by the EIU in collaboration with the Multilateral Investment Fund (a member of the Inter- American Development Bank Group) and CAF—Development Bank of Latin America, and with additional financial and technical support from the Center for Financial Inclusion at Accion and the MetLife Foundation, the Microscope is intended to benchmark national progress on financial inclusion and catalyse reform. The Global Microscope 2015 assesses the regulatory ecosystem for financial inclusion by evaluating 12 indicators across a range of developing economies in East and South Asia, Eastern Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, and Sub-Saharan Africa. This year's Microscope is the ninth edition of the study and the second that looks beyond microfinance, evaluating countries across the wider landscape of financial inclusion.

<img class="alignleft" src="storage/images/Pubs_Pics/2015_Microscope_Ranking.png" alt="2015 Microscope Ranking" width="200" height="238" />Compared with last year, the index results show a number of improvements. The average score for the 55 countries has increased (from 46 points to 48 points, where 100 is best) and only one country in 2015 has a score that is 25 points or lower. Moreover, conditions globally have improved this year for ten of the 12 indicators covered in the index. These gains indicate that some very basic elements of policy essential to promoting financial inclusion are now widespread.

Consistent with last year's overall performance, Latin America and the Caribbean (LAC) and East and South Asia tie for the highest overall scores regionally, with LAC countries capturing five of the global top ten countries by rank. Eastern Europe and Central Asia and Sub-Saharan Africa had very similar scores (one point difference), finishing third and fourth in regional rankings, respectively. The Middle East and North Africa (MENA) posted the lowest overall score in the index.

The countries with the greatest increases in their overall scores this year are more likely to have a comprehensive strategy in place, or at least programmes and laws that tackle multiple, often interlinked, barriers to inclusion simultaneously. India recorded one of the biggest increases of any country in its score this year (10 points), which reflects in part a substantial drive to make banking more accessible to the entire population. This improved accessibility was accomplished through the introduction of guidelines for creating specialised Payment Banks and Small Finance Banks specifically aimed at the poor. Two other top gainers over the past year – Haiti and Egypt (each of which improved their scores by eight points) – implemented measures to establish an even broader set of financial inclusion mechanisms that include government support and regulation and supervision of credit.

Challenges in the financial inclusion environment remain. Many institutions, such as credit unions and co-operatives in LAC and Sub-Saharan Africa, are still not prudentially regulated. Although more countries are developing unique rules for insurance that specifically target low-income consumers (including microinsurance), many countries still regulate this type of insurance under broader policies that cover all insurance types. Finally, consumer protection remains a concern for many consumers of financial products: only eight of the 55 index countries provide a comprehensive framework and capacity to protect the financial consumer.
<ul>
 	<li>Download the <a href="http://bit.ly/1m06M8o" target="_blank" rel="noopener">2015 Microscope in English (PDF)  </a></li>
 	<li>Download <a href="http://bit.ly/21BB55B" target="_blank" rel="noopener">2015 Microscope Bibliography (PDF)</a></li>
 	<li>Download the<a href="http://bit.ly/1IIEy6V" target="_blank" rel="noopener"> 2015 Microscope Benchmarking Model (Excel)</a></li>
</ul>
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Global Microscope 2015: The Enabling Environment for Financial Inclusion

<h2>Peru, Colombia and the Philippines have the most conducive environments for financial inclusion; East &amp; South Asia and Sub-Saharan Africa posted the highest scores for electronic payments</h2>
The Global Microscope, now in its eighth year, has expanded its framework to measure financial inclusion beyond microfinance. The 2014 Microscope examines the inclusiveness of countries’ financial sectors by considering best practices in the national regulatory environment and institutional support in the safe provision of a wider range of financial products and services to low income populations.

Developed by the EIU in collaboration with the Multilateral Investment Fund (a member of the Inter-American Development Bank Group) and CAF (the development bank of Latin America), and with additional support from the Center for Financial Inclusion at Accion and Citi Microfinance, the Global Microscope scores countries as a way of benchmarking their progress toward a financially inclusive environment for the bottom of the pyramid.

Regionally, Latin America and the Caribbean (LAC) and East and South Asia tie for the highest overall scores in the Global Microscope 2014. LAC countries also captured half the slots in the global top ten. The Middle East and North Africa (MENA) region posted the lowest overall score. East and South Asia and Sub-Saharan Africa tied for the highest regional scores in regulations for electronic payments, one of the new topics in this year’s Microscope. Countries like Bangladesh, Pakistan and Sri Lanka have the electronic payments infrastructure to serve the bottom of the pyramid’s needs for financial services and Kenya and Tanzania have adopted regulations that are conducive to the growth of mobile payments.

<img class="img-left alignleft" src="storage/Microscope_Ranking.png" alt="Microscope Ranking" width="200" height="238" />Despite the change in methodology, Peru held the top position in the Global Microscope 2014 for the seventh consecutive year, followed closely by Colombia and the Philippines. Both South American countries showed strength across the board, ranking in the top five in most of the indicators. Colombia and Peru are global leaders in prudential regulation and rules for deposit-taking, and have strong records in micro-loans and provision of savings products to the poor.

The study found that most of the countries that fared well in the previous index also achieved good scores in the new Microscope. In fact, six of the top ten countries from last year’s Microscope are among the best performers this year (Bolivia, Cambodia, Colombia, Peru, Pakistan, and Philippines). The study revealed that countries with enabling environments for microfinance tend to have favourable conditions for financial inclusion.

At the other end of the spectrum, countries at the bottom of the index performed especially poorly on measures of institutional support for financial inclusion. The institutional architecture for financial inclusion is covered through such indicators as government support for financial inclusion, credit reporting systems, market conduct rules, and grievance redress and availability of dispute resolution mechanisms. Countries near the bottom of the index struggle in all of these areas. These results highlight two important needs: first, to make a serious national commitment to financial inclusion and, second, to enact regulations that will build a healthy ecosystem for financial inclusion.
<ul>
 	<li>Download the <a href="http://bit.ly/1s9k6T0">2014 Microscope in English (PDF)</a>  </li>
 	<li>Download the <a href="http://bit.ly/1x6XJFG">2014 Microscope in Spanish (PDF)  </a></li>
 	<li>Download <a href="http://bit.ly/1BGXpfJ">2014 Microscope Key Messages (PDF)</a></li>
 	<li>Download the<a href="http://centerforfinancialinclusionblog.files.wordpress.com/2014/11/2014_microscope_final.xlsm"> 2014 Microscope Model (Excel)</a></li>
</ul>
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Global Microscope 2014: The Enabling Environment for Financial Inclusion

<h2>Latin American and Caribbean countries dominate the top ten; most Asian countries experience significant improvements; Middle East and North African countries posted the lowest scores</h2>
The Microscope, now in its seventh year, examines countries’ microfinance sectors by considering the national regulatory environment and the corresponding institutional framework. Developed by the EIU in collaboration with the Multilateral Investment Fund (a member of the Inter-American Development Bank Group) and CAF (the development bank of Latin America), and with additional support from the Center for Financial Inclusion at Accion and Citi Microfinance, the Microscope scores countries as a way of benchmarking progress. Of the 55 countries studied in this year’s report, 30 improved their scores, 19 fell back and six were unchanged.

Most of this year’s improvements occurred in the Supporting Institutional Framework for microfinance, while scores for Regulatory Framework and Practices mostly declined. The growth of credit bureaus, increased client protection activities, and the expansion of mobile banking drove the improvements, with Bosnia and Herzegovina and Pakistan joining the top performers in this category. Even so, one-fifth of the countries in the study still do not have a functioning credit bureau.

Latin America and the Caribbean (LAC) once again had the highest overall regional score in the 2013 Global Microscope. LAC countries also captured half the slots in the global top ten. Asian countries experienced significant improvements in overall rankings because of changes in their institutional frameworks, led by better dispute resolution systems and improved credit bureaus. Although the four countries in the Middle East and North Africa (MENA) showed slight improvements from the year before, the region still posted the lowest overall score.

Country highlights:
<ul>
 	<li>New to the top ten are the Dominican Republic and Uganda, while Nicaragua breaks into the top 15.</li>
 	<li>Improvements in credit bureaus contributed to Cambodia’s continued rise. After entering the top ten last year, Cambodia jumped two more spots this year to number six, just behind Kenya.</li>
 	<li>India rose to 16th from 22th. Except for the State of Andhra Pradesh (AP), the country has overcome the effects of the October 2010 microfinance crisis. Indian MFIs have also made significant progress in establishing proper grievance-redress systems.</li>
 	<li>Ecuador, Mexico and the Kyrgyz Republic all faced challenging microfinance environments in 2013. Ecuador’s NGOs operating in micro-credit face more operational obstacles, while Mexico’s financial supervisor faced difficulties bringing some types of deposit-taking institutions under its supervision. The Kyrgyz Republic fell significantly in the rankings because of the imposition of interest rates caps and disruptions to the dispute resolution mechanisms.</li>
</ul>
The 2013 Global Microscope used the same set of indicators and methodology as the 2012 study. This year, however, the EIU increased consultations with microfinance institutions, networks, regulators, consultants and investors to gather additional insights.
<ul>
 	<li>Download the 2013 Global Microscope (PDF):<a href="http://bit.ly/15RIxQo" target="_blank" rel="noopener"> English</a>, <a href="http://bit.ly/19vD7W7" target="_blank" rel="noopener">Spanish</a></li>
 	<li>Press Release: <a href="http://www.fomin.org/mif/HOME/News/PressReleases/tabid/467/ArtMID/3819/ArticleID/873/language/en-US/Default.aspx" target="_blank" rel="noopener">Global Microscope 2013: Continued growth and remarkable innovation in financial markets for low-income populations</a></li>
 	<li><a href="http://www.fomin.org/file.aspx?DOCNUM=38098160">Download the 2013 Microscope scorecard</a></li>
</ul>
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