> Posted by Tilman Ehrbeck, CEO, CGAP
The following post was originally published on the CGAP Blog.
World leaders are embracing financial inclusion at an accelerating pace. In May, the UN High-Level Panel chaired by Liberia‘s President Johnson Sirleaf, Indonesia’s President Bambang Yudhoyono, and the UK’s Prime Minister David Cameron, presented the recommendations for the post-2015 UN Development Goals, which included universal access to financial services as a critical enabler for job creation and equitable growth. In September, the G20 reaffirmed its commitment to financial inclusion as part of its development agenda. And most recently, during the IMF/World Bank Annual Meetings earlier this month, World Bank President Jim Kim called for collective action to reach universal financial access by 2020.
World leaders do this because they know that an inclusive financial system that responsibly reaches all citizens is an important ingredient for social and economic progress for emerging markets and developing countries. At the microeconomic level, it helps poor households and small businesses generate income, build assets, smooth consumption, and better manage risks. At the macroeconomic level, the depth of financial intermediation under most circumstances spurs growth and reduces inequality. An inclusive financial system also helps governments to better execute social policy in other priority areas such as education and health, for example through more targeted financial transfers.
Despite the political tailwind, half of the working-age adults globally – 2.5 billion people – remain excluded from formal financial services. Instead, they have to rely on the age-old informal mechanisms of the moneylender or pawnbroker for credit or the rotating savings club and vulnerable livestock for savings. These informal mechanisms tend to be unreliable and can be very expensive.
What needs to happen to meaningfully advance financial inclusion for the poor – an end-state in which everyone has access and can use the broad range of financial services they need to improve their lives? World Bank President Kim has identified 2020 as a target for achieving universal access to basic transaction services via mobile money, debit cards or simplified bank accounts. This is an important first step towards that broader range of services.
For the full text of this post, visit the CGAP Blog.
Image credit: Joel C. Forte / CGAP Blog
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