Nearly two billion people across the globe lack access to formal financial services and approximately 90 percent of these people live in developing countries. They are excluded mainly due to four predominant barriers preventing accessibility:
<ul>
 	<li>Living in rural areas</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Reduced access to digital technology </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Distrust in banks </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Lack of financial and digital literacy.
</li>
</ul>
Over the last four years, Comic Relief and Jersey Overseas Aid have been working together to tackle financial exclusion to make sure no one gets left behind. In 2017, Comic Relief and Jersey Overseas Aid launched a joint program, <a href="https://www.joa.je/branching-out-with-comic-relief/" target="_blank" rel="noopener noreferrer">Branching Out: Financial Inclusion at the Margins</a>, that supports eight organizations through 19 different grants working towards financial inclusion in Zambia, Rwanda, and Sierra Leone. Since the launch of the program, hundreds of savings groups have been created, helping more than 124,000 people gain practical tools to better plan for the future, achieve long-term goals, and prepare for emergencies. Things were looking up.

Then the unexpected occurred in early 2020. COVID-19 presented – and still presents – a real danger to those who were already at the margins of society. 
<blockquote>The challenges created by COVID-19 had a catalytic effect on accelerating FSPs' shift to digital delivery of financial services.</blockquote>
In light of the pandemic, the Branching Out program commissioned a study, <a href="https://res.torontocentre.org/guidedocs/Resilient%20and%20Inclusive%20Financial%20Services%20Delivery%20During%20COVID-19.pdf" target="_blank" rel="noopener noreferrer">Resilient and Inclusive Financial Services Delivery During COVID-19,</a> through the Toronto Centre. The study examines crucial lessons learned in responding to the pandemic in 2020-21. The program interviewed organizations striving to support vulnerable people to gain access to financial services during this trying time to prevent vital progress from being undone.

The study revealed two major findings:
<ul>
 	<li>Digitalization is key for resilience.</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="11" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Providing practical tools and guidance to financial services is needed now more than ever.</li>
</ul>
The report also shows that the challenges created by COVID-19 had a catalytic effect on accelerating financial service providers’ (FSPs) shift to digital delivery of financial services. When face-to-face service delivery was significantly reduced due to COVID-19 health protocols, resilient FSPs and countries (those experiencing little to no contraction in business) were those that were able to implement new measures to reduce in-person contact.

The table below illustrates the changes in delivery channels used by FSPs. The y-axis indicates the percentage of FSPs surveyed (the total respondents also included a smaller number of supervisors and associations). Respondents are based in Zambia, Rwanda, and Sierra Leone.
<h4 style="text-align: center;"><span class="NormalTextRun SCXW151714652 BCX0" data-ccp-charstyle="normaltextrun" data-ccp-charstyle-defn="{&quot;ObjectId&quot;:&quot;e1c145c7-e2cb-47f2-9ba6-6c688a134605|117&quot;,&quot;ClassId&quot;:1073872969,&quot;Properties&quot;:[134233614,&quot;true&quot;,201340122,&quot;1&quot;,469775450,&quot;normaltextrun&quot;,469778129,&quot;normaltextrun&quot;,469778324,&quot;Default Paragraph Font&quot;]}">Percentage of FSP Respondents Using the Delivery Channel Type<span class="EOP SCXW151714652 BCX0" data-ccp-props="{&quot;134233117&quot;:true,&quot;134233118&quot;:true,&quot;201341983&quot;:0,&quot;335551550&quot;:2,&quot;335551620&quot;:2,&quot;335559740&quot;:240}"> </h4>
<img class="wp-image-43599 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2021/12/Screen-Shot-2021-12-07-at-2.04.01-PM.png" alt="" width="965" height="480" />
(Credit: Toronto Centre)
The uptake of digitalization in each of the countries we surveyed was slow before the pandemic. This could be due to the barriers individuals face, such as:  
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Limited access to the technology needed for digital access, especially for women and those in rural areas</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">The level of digital literacy, low before COVID-19 in all three countries, presented a barrier for some groups, especially for women and rural populations</li>
 	<li data-leveltext="" data-font="Symbol" data-listid="10" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Issues of trust and concerns around data privacy and transparency were hindrances to quick adoption of digital delivery channels.</li>
</ul>
<blockquote class="pullquote--right">Progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized during the pandemic.</blockquote>
During the pandemic, progress of digitalization and infrastructure at the country level seemed to influence which delivery channels were emphasized. For example, FSPs in Zambia saw a rise in usage of mobile banking services from 26 percent pre-pandemic to 36 percent during the pandemic. In addition to this, Zambia FSPs used agents more to navigate the social distancing restrictions and to reach localized communities – as it was deemed more effective than bank branches.

In Rwanda, the uptake of mobile banking before the pandemic was similar to that of Zambia, though Rwandan usage was bolstered by government efforts towards creating a “cashless society,” which further promoted non-face-to-face services. Rwanda FSPs, therefore, focused their efforts on mobile and internet banking.

In Sierra Leone, internet banking rose from 7 percent to 17 percent during the pandemic – the largest increase seen in the report. However, because the country had faced similar challenges during the outbreak of Ebola, FSPs also managed to maintain a high level of face-to-face delivery, due to having the existing infrastructure to adhere to COVID-19 restrictions, such as social distancing and strict health and safety protocols. The experience that health authorities in Sierra Leone gained from the Ebola outbreak helped them prepare for COVID-19 even when little information was available.
<h2>What Does the Digitalization of Financial Services Mean for Those at Risk of Financial Exclusion?</h2>
The report found that in many cases the digitalization of financial services, accompanied by greater digital literacy and accessibility, has been a promising development in inclusive finance. Consumer associations revealed that one of the greatest impacts of this transition has been in access to repayment modalities which would otherwise have been impossible and could affect customer access to future credit as well as FSPs’ willingness to lend to affected groups.
<blockquote class="pullquote--left">There is a real danger that more people could be left behind if these barriers aren’t addressed.</blockquote>
However, while digitalization can be seen as a natural progression that has been bolstered by the conditions created by the pandemic, barriers persist, including a lack of internet access and low financial and digital literacy. There is a real danger that more people could be left behind if these aren’t addressed. 
<h2>Steps Needed for Continued Progress in Financial Inclusion</h2>
Comic Relief and Jersey Overseas Aid identified the following steps FSPs and regulatory bodies should take to continue making progress in financial inclusion:
<ul>
 	<li>Support the shift to increased digitalization to ensure it expands the reach of financial inclusion.  </li>
 	<li>Increase communication at the policy level and share risk assessments with FSPs to allow for proper planning and strategy.
</li>
 	<li>Set supervisory expectations for FSPs, through best practice guidelines, on the enhanced risk management measures that FSPs should take in ramping up non-face-to-face delivery. </li>
 	<li data-leveltext="" data-font="Symbol" data-listid="5" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Enhance information-gathering for effective supervision of these delivery channels as FSPs try out innovative approaches.  </li>
</ul>
Comic Relief and Jersey Overseas Aid’s aim has always been to ensure that those in the most rural communities don’t get left behind when it comes to accessing financial services. As a result of <a href="https://res.torontocentre.org/guidedocs/Resilient%20and%20Inclusive%20Financial%20Services%20Delivery%20During%20COVID-19.pdf" target="_blank" rel="noopener noreferrer">this report</a> and its findings, the Branching Out program will continue its vital work to support more people to understand and take control of their finances, get back on their feet, and plan for their future.

Furthering Digitalization’s Potential for Financial Inclusion: Insights from Sub-Saharan FSPs, Supervisors, and Associations

Discriminatory norms and practices are embedded in the financial system and, even when policies, regulations, and delivery channels are thought to be gender-neutral, it is difficult for women -- particularly low-income and marginalized populations -- to navigate available products and services. As a result, progress toward women’s economic empowerment has stagnated.

Financial inclusion must intentionally understand women’s needs and constraints. Designing financial products and services without a thorough <a href="https://www.centerforfinancialinclusion.org/normative-constraints-to-womens-financial-inclusion-what-we-know-and-what-we-need-to-know">examination of social norms</a> that impact women’s behaviors may in fact reinforce restrictive gender roles and permanently relegate women to the informal sector.

Although gender-aware financial products and services are increasingly available, they often stop at “workarounds” that, while meeting women’s immediate needs, still fail to provide holistic solutions to address and transform the norms that limit women’s broader economic livelihoods.
<h2>Gender Aware or Gender Siloed Services and Policies?</h2>
The microfinance sector – despite good intentions– often is designed to accommodate, rather than address, discriminatory norms.
<blockquote class="pullquote--left">The microfinance sector often is designed to accommodate, rather than address, discriminatory norms.</blockquote>
Women’s mobility is one discriminatory norm that the sector historically has accommodated and even perpetuated. Often, women face limited mobility due to unequal care responsibilities, such as caring for children or other family members, or the cultural expectation that she be accompanied by a male relative when leaving her home. Because of these expectations, it is difficult for women to engage in income-generating activities in public spaces, ultimately increasing the appeal for local microcredit or savings groups. Group lending was designed to account for women’s mobility and collateral constraints by building an accountability mechanism out of the <a href="https://www.sciencedirect.com/science/article/abs/pii/S0305750X04000750" target="_blank" rel="noopener noreferrer">social and community consequences of non-repayment</a>.

Furthermore, although many women have gained access to financial services through MFIs and savings groups, policies that restrict women’s ability to own property or accumulate assets <a href="https://wbl.worldbank.org/content/dam/sites/wbl/documents/2021/02/WBL2021_ENG_v2.pdf" target="_blank" rel="noopener noreferrer">remain intact</a> in many markets. MFIs and savings groups often operate in parallel to the formal economy with less or separate regulatory oversight and, as a result, women are not afforded the same legal protections.

Evaluations of the impact of microcredit have been mixed, many showing <a href="https://www.cgap.org/sites/default/files/publications/2019_07_FocusNote_Emerging_Evidence.pdf" target="_blank" rel="noopener noreferrer">inconclusive</a> impact on women’s economic empowerment <a href="https://econpapers.repec.org/article/eeewdevel/v_3a36_3ay_3a2008_3ai_3a12_3ap_3a2620-2642.htm" target="_blank" rel="noopener noreferrer">outcomes</a>. While many factors are at play, the lack of a norms-transformative approach undercuts empowerment gains. Creating parallel, informal systems for women’s financial activities can be an unintended consequence of gender-aware financial inclusion efforts that try to go around rather than address restrictive gender norms.
<h2>Cementing Digital Divides</h2>
Similarly, digital financial services (DFS) risk bypassing social norms and implementing workarounds in order to merely reach women, without focusing on the outcome of women’s economic empowerment in a digital era.

At first glance, DFS presents a remedy to women’s financial exclusion, making financial services <a href="https://www.icrw.org/wp-content/uploads/2017/11/Gender-and-digital-financial-inclusion.pdf" target="_blank" rel="noopener noreferrer">more accessible</a> by reducing the time and risk of traveling to a physical branch to make transfers or payments, and by enhancing the privacy of transactions. In Niger, women that received digital transfers <a href="https://sites.tufts.edu/jennyaker/files/2010/02/Zap_it_to_Me_26feb2012.pdf" target="_blank" rel="noopener noreferrer">increased their control over household resources</a> compared to those that received cash, since the digital transfer was less observable by their spouses and family members. And a recent study in Zambia revealed that women were willing to <a href="https://www.nottingham.ac.uk/cedex/news/papers/2020-06.aspx" target="_blank" rel="noopener noreferrer">give up household income to maintain privacy</a> over earnings from their husbands.

However, while these are promising mechanisms, there are several assumptions at play. One assumption is that women users wholly own and operate their phones. For digital transactions to enhance control through privacy, women must have access to their own phone or a phone that is not monitored or controlled by other family members. In developing economies, women are still eight percent less likely than men to own a phone (the gap is even larger for smartphone ownership) and <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2020/05/GSMA-The-Mobile-Gender-Gap-Report-2020.pdf" target="_blank" rel="noopener noreferrer">20 percent less likely to use mobile internet</a> than men. Sharing phones is also common for many low-income women, and gendered expectations can <a href="http://epod.cid.harvard.edu/sites/default/files/2018-10/A_Tough_Call.pdf" target="_blank" rel="noopener noreferrer">constrain the duration and purpose of women’s phone use</a>.

Additionally, enabling factors such as <a href="https://www.centerforfinancialinclusion.org/building-womens-financial-capability-a-path-toward-transformation">digital capability</a>, confidence in using digital financial services or platforms, and trust in technology also have significant gender gaps. Few providers are designing appropriate digital onramps that account for specific skill levels and the different needs of women.
<blockquote class="pullquote--right">Digital platforms must consider how gender norms are baked into the design of these systems.</blockquote>
Digital platforms – whether social, e-commerce, or gig work -- also must consider how gender norms can act as barriers to entry or are baked into the design of these systems. An examination of <a href="https://theswaddle.com/apps-like-uber-ola-make-driving-a-flexible-profession-why-cant-more-women-tap-into-it/" target="_blank" rel="noopener noreferrer">ride-hailing services in India</a> shows that women are unable to meet the incentives set by the platform and earn less for not being able to drive at peak times or complete longer journeys or airport pickups, often due to care responsibilities or safety concerns.

In examining the nuances of broader digital inclusion for women, we see yet again that social norms are at play. Lack of education or gender roles that limit women to caretakers rather than earners or entrepreneurs can limit women’s use of mobile internet even if they have access to a phone in their household. Neither DFS nor <a href="https://www.cgap.org/blog/forging-her-own-path-women-and-informal-online-commerce" target="_blank" rel="noopener noreferrer">platforms and social or e-commerce</a> can successfully include women without first addressing norms.
<h2>Opportunities to Shift Directions</h2>
The same challenges women face in accessing and using traditional financial services are equally present for digital financial inclusion. Rather than build a system that accommodates the barriers and constraints faced by women, we have an opportunity to make DFS catalyze women’s financial inclusion and economic empowerment.
<blockquote class="pullquote--left">We have an opportunity to make DFS catalyze women’s financial inclusion and economic empowerment.</blockquote>
Donors have the opportunity to invest in innovative research and test solutions that build women’s financial and digital capability or <a href="https://www.careevaluations.org/evaluation/digital-subwallets-and-household-dialogues/" target="_blank" rel="noopener noreferrer">build solutions specifically for women</a>. Governments can guide financial service providers and offer technical support and research capabilities to improve products and services for women. Market facilitators, including international non-governmental organizations like CARE and FSD Africa, can broker partnerships between community-based organizations and providers to create better informed and equitable systems and processes.

We can do more than create gender-aware financial products and services. By embedding women’s needs and understanding their constraints, particularly discriminatory gender norms, we can advance women’s inclusion by creating a financial system that works for them by design.

Workarounds Don’t Work: Gender-Aware Financial Services Must Help Address Discriminatory Norms

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

What counts as financial inclusion? Reporting the number of active accounts in a country is a common way to measure progress in financial inclusion. But as access to, and uptake of, accounts increases, we need more powerful indicators to help us understand the dynamics of how people use financial services, and digital financial services in particular.

At <a href="https://i2ifacility.org/">insight2impact</a>, we’ve spent the last four years exploring these questions and have tested our measurement frameworks and emergent indicators on both demand-side survey data and transactional data in Mexico and Nigeria. We also went further by linking the data sets for the same person to analyze a more complete picture of people’s financial lives, both within and outside of formal financial services. What we found was both curious and transformative for our thinking on how we measure financial inclusion.
<h2>Frequency as a Means to Track Digitization</h2>
The first step to financial inclusion is <a href="http://www.worldbank.org/en/topic/financialinclusion/overview">having access to a transactional account</a>. If I choose to take up an account, I’m able to store money or send and receive payments, but if I use my account very rarely, am I still financially included? Maybe I receive a payment and immediately withdraw it all at an ATM. What if all the transactions I need to do can only be done in cash?

Analyzing frequency of usage gives us an indication of how populations are (or aren’t) switching to digital channels for transacting. We analyzed bank transaction data in Mexico to better understand financial service usage patterns. Debit-card usage by customers was relatively high, with 78 percent using their cards weekly, but 60 percent of monthly card usage occurred at ATMs to withdraw cash, not for purchases via POS or online. The frequency of ATM vs non-ATM card usage paints a more realistic picture of digitization in Mexico. It’s a picture of incomplete digitization, with cash remaining central for most people.

Secondly, we linked the transaction data to survey responses to compare people’s online vs offline transaction behavior. This revealed that most people still use cash for their regular expenses, even if they have a bank account. The graph below shows both banked and unbanked people’s cash usage for regular expenses such as rent and bills, and daily expenses such as groceries and transport. Cash was ubiquitous, regardless of gender, socio-economic segment or account ownership. By only counting the accounts, we would miss the scale of non-digital financial lives.

Counting More than Accounts: What Can Frequency of Transactions Tell Us About Financial Inclusion?

How is the world – and the World Bank – doing on its campaign for <a href="http://ufa.worldbank.org/">Universal Financial Access</a> (UFA) by 2020?

With 2020 just a short year away, this question will be asked wherever financial inclusion is discussed at the World Bank Spring Meetings this week. Only so much can change in a year, so it is just a small leap to imagine the likely situation in 2020. During last year’s meetings, the World Bank cited a figure of 69 percent of adults in the world having accounts, according to the 2017 Global Findex data collection round. <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/09/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results-08032018-1.pdf">Our own look at the 2017 Findex numbers</a>, which removes fully dormant accounts, shows that only 48 percent of adults in low- and middle-income countries had accounts that they actually used.

We think this is the right number to focus on: it sets aside the many useless accounts that inflate the rolls and avoids the overly rosy picture that emerges from including high income countries where account access is no longer a relevant challenge. Based on what we’ve seen in the past several years, we could guesstimate that by 2020 active account access in the developing world will be somewhere between 50 and 60 percent of adults, still well short of universal. We won’t know the 2020 result until 2021, when the Findex 2020 data is published. The Findex team is gearing up now for that massive data collection and analysis effort.

The World Bank could declare victory, recognizing the enormous increases in account access that have occurred, and expressing confidence in the momentum around financial inclusion across the world, which will surely result in universal access within the next decade.

Meanwhile, the World Bank and its partners are focusing on upholding their institutional commitments to the UFA campaign. The bank pledged to contribute to the inclusion of one billion people. Many others have also made numeric pledges, including VISA, Mastercard, and GSMA (500 million people each), large mass-market-oriented financial institutions (Ant Financial, China, 100 million; Equity Bank, Kenya, 50 million; and Bank Mandiri, Indonesia, 50 million) and associations like the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/partnership-for-responsible-financial-inclusion/">Partnership for Responsible Financial Inclusion</a> (70 million) and the <a href="https://www.wsbi-esbg.org/About-us">World Savings Bank Institute</a> (400 million). I am aware first hand of the efforts of some of these organizations to take their pledges seriously, putting in both resources and high-level attention. This week we hope to see some of these partners report on the progress of their efforts.

With the departure of its former president, Jim Kim, who championed the UFA effort personally, one wonders how much attention the World Bank will continue to pay to financial inclusion. The new chief, David Malpass, begins his term with this weeks’ meetings. Malpass, a former Bear Stearns economist and Trump campaign advisor, has been <a href="https://foreignpolicy.com/2019/02/05/will-david-malpass-run-the-world-bank-or-ruin-it/">highly critical</a> of the World Bank. Understandably, World Bank watchers are speculating intensely over whether he will pursue his critiques of the bank, though in the lead-up to his arrival he softened his prior calls for the bank to end lending to upper middle-income countries like China and Brazil and affirmed the focus of the bank on elimination of extreme poverty and on economic growth. This sounds compatible with maintaining a focus on financial inclusion, though staff inside the Trump foreign policy world have reported that the administration does not often use the words “inclusion” or “inclusive”, preferring “market development.”
<blockquote>Unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly.</blockquote>
Nevertheless, unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly. Perhaps it will not receive the same spotlight it has enjoyed in recent years, but work will undoubtedly continue off stage. As bank staff members I recently spoke with noted, financial inclusion is embedded in many departments of the bank, with dozens if not hundreds of professionals working with individual countries to make progress every day. Barring a drastic turn in the World Bank’s mission, this will continue, regardless of who takes the helm.

The Outlook for Universal Financial Access in 2020

This post originally appeared on the <a href="https://www.accion.org/">Accion</a> website.

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.


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?

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.

Q: In your time at the World Bank, how have you seen financial inclusion’s role in eliminating poverty evolve?

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]

Q: What part of the most recent Findex results do you think has resonated most strongly with the industry and why?

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.

Q: If we could do one thing to promote usage of financial accounts, what would it be?

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.

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?

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.

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?

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.

Q: As mobile phone usage continues to grow, how do we ensure technology can live up to its promise for driving financial inclusion?

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.

Q: How will we know when financial inclusion has succeeded?

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

In celebration of its 10th anniversary, the Center for Financial Inclusion at Accion asked 10 leaders in the financial inclusion community to set out their agenda for Getting Inclusion Right. The resulting essay and webinar series creates a roadmap to take financial inclusion into the next decade.

You are invited to join CFI on Wednesday, October 24, at 10:00 am EDT for this third virtual event , featuring <a href="https://www.centerforfinancialinclusion.org/bio/shameran-abed">Shameran Abed</a>, Director of BRAC Microfinance and Ultra Poor Programs, on the digital and gender divide. Our Getting Inclusion Right series features insights from:
<ul>
 	<li>Simone di Castri and Ariadne Plaitakis of Bankable Frontier Associates on getting policies right and Buhle Goslar, Chief Customer Officer of Jumo, on getting credit right (held Thursday, October 18 at 10am EDT)</li>
 	<li>Garance Wattez-Richard of AXA on getting insurance right and Elisabeth Rhyne, Managing Director of CFI, on getting inclusion right from the customer’s perspective (now available to listen to <a href="https://www.centerforfinancialinclusion.org/webinar-getting-inclusion-right">here</a>)</li>
</ul>
Over the coming weeks, you will also have a chance to read or hear from Tim Adams of the Institute of International Finance on why financial inclusion matters, and Mark Pickens of Visa on payments. We will also look at the ecosystem with Chris Skinner of the Finanser, data privacy with Katharine Kemp of the University of New South Wales, and the role of investors with Jonathan Whittle of Quona Capital.

Together, these leaders lay out a “true North” for the financial inclusion sector that is both visionary and practical as we work to create tangible benefits for the financially excluded and underserved.

We hope you’ll tune into these live conversations with leading figures as they discuss and respond to your questions about key challenges and opportunities for Getting Inclusion Right—we look forward to having you <a href="https://register.gotowebinar.com/register/7243419170722974721">join us</a>!

Webinar:  Bridging the Digital Gender Gap in Financial Inclusion

<h1>Why Benchmarking Matters</h1>
<h5>HOW DO WE KNOW WE'RE BEING EFFECTIVE?</h5>
Achieving financial inclusion requires continuously evaluating how well the industry is progressing and how far we still have to go. Benchmarking activities help us measure progress and identify priorities for research and action. To reach 3 billion people who are left out of or poorly served by the financial sector, a full understanding of progress and setbacks is essential.

&nbsp;
<h1>Approach</h1>
<h5>INDEPENDENT AND CRITICAL PERSPECTIVE</h5>
We are committed to keeping the industry focused on financial inclusion that benefits consumers. CFI assesses public industry data, like the <a href="https://globalfindex.worldbank.org/">Global Findex</a> and the <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">Gallup Global Financial Health Study</a> with an independent and critical eye, shining a spotlight on where action is most needed. We also participate in joint benchmarking exercises with partners to examine specific aspects of the sector, like the regulatory environment or risk perceptions. In all our benchmarking and research endeavors, we are keen to reality test prevailing narratives, ask tough questions and shine a light on overlooked trends.

&nbsp;
<h1>Results</h1>
<h5>WHAT HAVE WE ACHIEVED?</h5>
<h2>Benchmarking the Enabling Environment</h2>
Together with partners, CFI sponsors and contributes to the Global Microscope—a project led by the Economist Intelligence Unit. Intended to benchmark the enabling environment for promoting financial inclusion, the Microscope assesses the institutional and regulatory ecosystem based on selected indicators across over 50 developing economies. We have helped the Microscope evolve from a study of microfinance in Latin America and the Caribbean into a global study of the broader financial inclusion ecosystem. Additionally, we also look at new indicators on the enabling environment for digital financial services.

With 2018 marking its eleventh edition, the Microscope is one of the few benchmarking tools in the financial inclusion sector that spans a decade or more. Regulators across the world use its scoring and rankings as yardsticks for their own performance. Investors also consult the study when considering investment strategies. Many countries are cognizant of where they stand in the global rankings and are motivated to improve.

Benchmarking Financial Inclusion Progress

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.

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)

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.

<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" />
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.
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" />
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.

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" />

Credit is flat, and savings is declining, even as digital payments make significant gains.

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

Mayada El-Zoghbi

Managing Director

José Morell-Ducós

Alex Kessler

Isabelle Carboni

Elisabeth Rhyne

Greta Bull

Sonja Kelly

Rachel Morpeth

Jayshree Venkatesan

Alex Counts

Rwanda

Sierra Leone

Sub-Saharan Africa

Zambia

Bangladesh

Colombia

Latin America and The Caribbean

South Asia

Mexico

Nigeria

East Asia and Pacific

Europe and Central Asia

Middle East and North Africa

North America

United States

Kenya

Benin

Uganda

Access Usage Gap

Challenges and Crises

Delivery Channels

Digital Financial Services

Enabling Environment

Underserved Groups

Women

Policy, Regulation and Government Initiatives

Trends

Data Analytics

Financial Capability

Financial Technology

Payments

Personal Financial Management

Financial Inclusion Strategy

Persons With Disabilities

Credit

Digital Credit

Mobile Banking

Resilience

Saving

Financial Health

Financial Service Providers

Consumer Protection

Smart Certification

Blog Post

Webinar

Case Study

Report

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

<div class="getty embed image">

Financial inclusion momentum has slowed in the past three years, the 2017 Global Findex revealed. The financial inclusion community may wish to reflect on these results, recalibrate expectations, and then re-engage.

In a <a href="https://centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2/" target="_blank" rel="noopener noreferrer">new report</a>, the Center for Financial Inclusion at Accion journeys through the 2017 Global Findex data recently released by the World Bank, which assess progress toward financial inclusion on the basis of a 150-country study conducted by Gallup. We examined the 2017 Findex data from our own perspective, and although we found some good news, there are also some concerning trends.

In recent years, the headline for financial inclusion has been the percentage of adults in the world with accounts (either financial institution or mobile-based). That number has grown since 2014 to 69 percent – good news. But we believe it is more relevant, if less encouraging, to focus on the number of adults with active accounts, that is, accounts they have used at least once in the past year. That number is 55 percent, representing a net gain of 280 million active accounts between 2014 and 2017, a much more modest gain than the nearly 700 million total new accounts added in the previous three years (2011-2014).

Looking specifically at the developing world and correcting for account dormancy, only 48 percent of adults in developing countries have active accounts – disappointingly, participation remains below half. Overall, account growth has slowed, and at the same time the access-usage gap has grown.

Moreover, these new accounts have not resulted in greater availability of credit or greater incidence of savings. Savings has dropped slightly in many countries in the past three years – and that includes both saving in any form and saving in financial institutions. In developing countries as a whole, about 20 percent of the adult population saves in financial institutions. Credit is essentially flat at 15 percent of the adult population, which may be a surprise for some who have watched with anticipation the rise of fintech-enabled digital credit using alternative data and algorithms. These new forms of credit will need to scale a great deal more before they can make a significant difference in the big picture of financial inclusion.

Financial inclusion promises to provide people with more options and tools to manage their day-to-day funds, respond to emergencies, and seize opportunities. The Findex survey asked whether people believe they can come up with funds in case of emergency. In developing countries, however, responses were slightly less positive in 2017 than in 2014. Asked whether they could come up with 1/20 GNI per capita in a month, only about 50 percent of people in developing countries said it was possible—down 8 percentage points from the 2014 survey.

In short, a full suite of quality financial services that supports financial well-being is still a distant dream for more than half of the developing world.

The bright spot, however, involves greater use of digital payments. Many more people in the developing world have been involved in a digital transaction in the past year than ever before. In developing countries, an additional 12 percent of adults reported having made a digital payment in the last year. Of wage recipients in developing countries, about half received wages into an account in the past year, and 21 percent of people in developing countries purchase things and pay bills using mobile phones or the internet. Mobile accounts are connecting people to financial services all across Africa and in a handful of other countries, and at the same time in other regions, more people are using mobile phones to access their financial institution accounts.

Despite the growth of digital payments, the Findex 2017 results overall are sobering. Financial inclusion, while further away than expected, is still an achievable goal. It requires considerable thought and engagement from all industry stakeholders to ensure that inclusion will create active usage and meaningful change in the lives of consumers. We hope the financial inclusion community will use the 2017 results to engage in a serious conversation about how financial inclusion initiatives are affecting usage, products and financial well-being, and then to re-engage with eyes open as we continue pursuing the important tasks at hand.

For more analysis on these and other areas of financial inclusion, read the new report, <a href="https://centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results-2/" target="_blank" rel="noopener noreferrer">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a>.

</div>
&nbsp;

&nbsp;

&nbsp;

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

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 Financial Inclusion Hype vs. Reality, 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.

After great anticipation, three years’ worth to be exact, the 2017 Global Findex Database was officially released this morning. The Global Findex is the authoritative data source on global progress toward financial inclusion. Released every three years, the Global Findex surveys more than 150,000 adults in 144 economies to better understand how people access and use financial services to make payments, and also to save and borrow.

Since the 2014 Findex, the percent of the global population that has a bank account with a financial institution or mobile money service rose from 62 percent to 69 percent. Five-hundred and fifteen million individuals opened an account for the first time over the past three years, reducing the unbanked population to 1.7 billion adults worldwide. However, the new data also reveal critical shortcomings in progress. For instance, the financial inclusion gender gap didn’t improve. Globally, women remain 7 percent less likely to own a bank account than men.

Here are a few of the 2017 Global Findex’s high-level statistics:
<ul>
 	<li>Half of the 1.7 billion unbanked individuals worldwide live in just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.</li>
 	<li>In higher-income countries, 94 percent of adults have a bank account, while in developing countries this figure is 63 percent.</li>
 	<li>The proportion of individuals globally who send or receive digital payments increased from 42 percent to 52 percent; this figure is 76 percent for those who have a bank account.</li>
 	<li>In Sub-Saharan Africa, the proportion of individuals with a mobile money account nearly doubled to 21 percent, while bank account ownership increased by only 4 percent.</li>
 	<li>Globally, roughly two-thirds of those who are unbanked have a mobile phone, but Sub-Saharan Africa is the only region where mobile money penetration is greater than 10 percent.</li>
 	<li>In addition to the persistent gender gap, the difference in bank account ownership rates between the rich and the poor has not improved, with those living in the wealthiest 60 percent of households in the poorest 40 percent of economies 13 percentage points more likely to have a bank account.</li>
 	<li>The accounts of one-fifth of banked individuals worldwide are inactive.</li>
 	<li>The Findex’s financial resiliency question revealed that individuals in higher-income economies would be far more likely to be able to come up with emergency funds than those in developing economies.</li>
</ul>
For more findings, you can access the <a href="http://globalfindex.worldbank.org/">2017 Global Findex Database report</a>, <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/29510/211259ov.pdf">an abridged overview report</a>, and <a href="http://globalfindex.worldbank.org/sites/globalfindex/files/2018-04/Global%20Findex%20database_0.xlsx">the full dataset</a>.

In several weeks, the CFI will release a brief distilling our key takeaways from the 2017 Global Findex.

&nbsp;

&nbsp;

New Global Findex: 69 Percent of Global Population Is Banked

I walked past the International Monetary Fund on Pennsylvania Avenue on a sunny Saturday morning, a few blocks from the White House. Three large posters of international faces filled their windows, covered by the text #EndPoverty.

Across the street, two homeless men emerged from their tents.

More than 1 in 10 Americans – nearly 45 million people – are living below the poverty line. The United States has one of the highest poverty rates in the developed world, second only to Israel. A survey conducted by CareerBuilder estimated that <a href="http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey">78 percent</a> of Americans are living paycheck-to-paycheck – a number that has been steadily increasing each year. The U.S. consistently <a href="http://www.businessinsider.com/the-richest-countries-in-the-world-2017-3/#18-australia-gdp-per-capita-48806-39820-13">ranks</a> as one of the most affluent countries in the world, yet these statistics obscure the financial health of its population and how its wealth is distributed.

It is well known that profitably serving low-income clients can be a challenge. Earlier this year, Bank of America <a href="https://www.npr.org/sections/thetwo-way/2018/01/24/580324251/bank-of-america-ends-free-checking-option-a-bastion-for-low-income-customers">eliminated its free eBanking checking accounts</a>, which now require a $1,500 daily minimum balance or a $250 monthly deposit to avoid a $12 monthly “maintenance” fee. If Bank of America were a country, it would have the 8th highest GDP in the world, at <a href="http://www.annualreports.com/Company/bank-of-america-corporation">$2.2 trillion in assets</a>. It started in San Francisco as a bank for the common man. Surely it can follow the lead of many <a href="https://www.nerdwallet.com/blog/banking/best-free-checking-accounts/">other financial institutions</a> and offer a bank account that works for low-income people.

As we’ve written on the blog before, several of the day-to-day services that banked populations take for granted are costly and time-consuming for the unbanked. Cashing a check? Fee. Obtaining a pre-paid debit card? Fee. Transferring money? Fee. Money order to pay bills? Fee. Although these fees might seem small in dollar terms, they add up over time, and for Americans living paycheck-to-paycheck, every penny counts. According to consumer advocate Bill Bartmann, the 68 million financially underserved Americans spend an average of <a href="https://www.huffingtonpost.com/bill-bartmann/financial-exclusion-why-the-poor_b_7001914.html">$108 per month</a> per person on financial services.

Globally, financial inclusion is evolving and advancing. Where are we on progress in the United States?
<h3>Financial Access</h3>
Access to financial services in the United States is improving. Roughly <a href="https://obamawhitehouse.archives.gov/blog/2016/06/10/financial-inclusion-united-states">7 percent</a> of American households lack access to a bank account, and around 20 percent have a bank account but also use financial services associated with the financially excluded, like payday loans. By comparison, in 1989, 14 percent of U.S. households lacked a bank account. Improvements in services access were especially pronounced among those in the bottom income quintile and among minority households, which, over the period of 1989 to 2013, experienced an increase in access from <a href="https://obamawhitehouse.archives.gov/blog/2016/06/10/financial-inclusion-united-states">56 to 79 percent and from 65 to 87 percent</a>, respectively.
<h3>Financial Health</h3>
In terms of financial health, the Center for Financial Services Innovation (CFSI) finds that <a href="https://cfsinnovation.org/research/2017-financially-underserved-market-size-study/">57 percent</a> of American adults are struggling financially – with either large sums of debt, irregular income flows, and/or sporadic savings habits. The Federal Deposit Insurance Corporation (FDIC) estimates that approximately 91 million U.S. adults are credit-challenged, stemming either from being low-file or having a subprime credit score below 600.
<h3>Debt Levels</h3>
Last year saw the country reaching an all-time high in terms of total household debt, at roughly <a href="https://www.cnbc.com/2018/02/13/total-us-household-debt-soars-to-record-above-13-trillion.html">$13 trillion</a>, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. This was the fifth rise, with increases across the credit card, auto, mortgage, and student loan categories.

Arguably the most dramatic rise has been in student loan debt. In 2008, student debt made up only <a href="https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html">5 percent</a> of total household debt, but by 2017 this had increased to 11 percent. As of 2017, student loan borrowers owe a total of $1.3 trillion. Moreover, roughly one in ten student loan borrowers are behind on repayments, which is the highest delinquency rate of any type of loan in the country.
<h3>Savings Levels</h3>
According to data from the U.S. Bureau of Economic Analysis, the personal savings rate in the United States is at roughly <a href="https://www.fool.com/saving/2016/10/03/heres-the-average-americans-savings-rate.aspx">5.7 percent</a>, meaning that for every $100 earned, $5.70 is saved for purposes including emergencies, retirement, and the proverbial rainy-day. While this figure is a substantial improvement over the 1.9 percent savings rate before the financial crisis in 2008, a recommended healthy savings habit would involve setting aside between 10 percent and 15 percent of income.

Like many other countries, retirement savings in the United States are a growing problem as more baby boomers reach retirement age. According to Census Bureau data, older Americans were the only demographic that experienced a <a href="https://www.theatlantic.com/business/archive/2018/02/pensions-safety-net-california/553970/">poverty rate increase</a> between 2015 and 2016. Across the country’s adult population, the Census Bureau finds that two-thirds of Americans don’t contribute any money to a 401(k) or other retirement account.
<h3>Industry Progress</h3>
Over the past decade, transformations in technology, products, and business models have pushed the U.S. to meet a growing demand for financial inclusion.

As of February 2016, there were over 2,000 U.S. fintech start-ups, and fintech venture capital is steadily growing. One the biggest fintech success stories in the United States is the peer-to-peer mobile-based payment service Venmo. Owned by PayPal, Venmo has exhibited staggering <a href="https://www.dailydot.com/debug/venmo-growth-chart/">growth</a>. In the first quarter of 2015, Venmo processed $1.3 billion in payments, while two and a half years later, in the third quarter of 2017, the figure was $9 billion. In an effort to compete with Venmo and other payment apps, commercial banks are expanding their financial service offerings. A consortium of banks that includes Wells Fargo, Bank of America, JP Morgan Chase and Capital One rolled out Zelle in 2017, which is based on a similar model and allows for free, instant transfers between accounts of registered users.

Nationwide, there are more than 800 <a href="https://www.forbes.com/sites/darden/2014/06/05/fighting-financial-exclusion-how-to-serve-88-million-americans-who-have-no-bank/#111284992a5c">Community Development Financial Institutions</a> (CDFIs), private organizations fighting financial exclusion in rural areas (often deemed “bank deserts”) and disadvantaged urban zones. For customers who want to make sure their money is used to benefit communities, Morgan Simon of the Candide Group <a href="https://nextbillion.net/avoiding-the-ick-factor-four-easy-steps-to-align-your-investments-with-your-values-in-2018/">suggests</a> breaking up with your bank in favor of more socially-minded financial institutions like CDFIs, credit unions and community-based commercial banks.

Despite the increasingly digital payment structure of the U.S. financial system, millions of Americans still prefer cash over card. While 80 percent and 75 percent of American adults have a debit or credit card, respectively, more than 99 percent <a href="https://www.bostonfed.org/publications/research-data-report/2017/the-2015-survey-of-consumer-payment-choice-summary-results.aspx">report</a> that they still use cash. Innovative companies that recognize the need for payment flexibility are starting to fill in the gaps. <a href="http://paynearme.com/en/">PayNearMe</a>, for instance, offers remote transactions at more than 28,000 locations, such as CVS and 7-Eleven. At these neighborhood retailers, payments can be made for bills, rent, tickets and even taxes to participating entities located elsewhere.

At a federal level, the U.S. has implemented several programs to expand financial inclusion. To help alleviate the issue of inadequate retirement savings, the Obama administration introduced <a href="https://myra.gov/">My Retirement Account</a> (myRA) for people without access to employer-sponsored retirement plans. While the program was not well-advertised and saw low usage during its three years of activity, it was a step in the right direction. The retirement accounts didn’t carry fees or minimum balance requirements, and any earnings or withdrawals were tax free. Unfortunately the program was <a href="https://www.forbes.com/sites/nextavenue/2017/07/28/r-i-p-myra-retirement-account-gone-too-soon/#3c8b88077885">dropped</a> by the current administration in December 2017.

Eradicating financial exclusion in the United States will require cooperation among all sectors, public and private. While there may not be a simple solution, everyone has something to gain from creating a solid financial foundation for low-income Americans.

Featured image credit: Doug Focht via <a href="https://www.flickr.com/photos/99077624@N00/2272841875/">Flickr Creative Commons</a>

Have you read?

<a href="https://cfi-blog.org/2018/02/02/exchanging-cash-for-freedom-predatory-bail-bonds-in-the-u-s-criminal-justice-system/">Exchanging Cash for Freedom: Predatory Bail Bonds in the U.S. Criminal Justice System</a>

<a href="https://cfi-blog.org/2016/05/02/in-the-united-states-gender-gaps-in-financial-literacy-and-pay-persist/">In the United States, Gender Gaps in Financial Literacy and Pay Persist</a>

<a href="https://cfi-blog.org/2016/10/13/who-is-to-blame-for-global-de-risking-the-united-states/">Who Is to Blame for Global De-Risking? The United States?</a>

&nbsp;

Financial Inclusion in the U.S. – Are We Making Progress?

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

&gt; Posted by Beatrice Cheronoh and Nadia van de Walle, Research Associate and Senior Research Manager, InterMedia

Financial access in Kenya is already very high, especially when compared to other countries in Africa and Asia. In this setting, the momentum around expanding access has plateaued, but a new narrative is taking hold – around deepening engagement with financial services, more active use, and use of a wider range of more advanced services. Although there was no increase in the share of the population that holds a registered financial account, the 2016 Financial Inclusion Insights (FII) data shows that financial engagement is becoming more meaningful for those customers who are already included.

More specifically, in 2016 almost 7 in 10 Kenyan adults held a registered account with a formal financial institution. Mobile money continued to lead in terms of access and account registration (Figure 1). In fact, approximately 97 percent of those who had a financial account in 2016 had a mobile money account – sometimes in addition to a bank and/or microfinance account. While growth in the number of registered users plateaued, advanced use of a registered account increased in 2016 (Figure 2). Such advanced usage includes saving, borrowing, paying bills, and other activities beyond person-to-person (P2P) transfers and cash deposits and withdrawals. Savings was the most common advanced use case for both bank and mobile money accounts, followed by bill pay and receiving wages. These findings show that mobile money services can fill a range of needs beyond P2P payments.

[caption id="attachment_25045" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/02/figure-1.png"><img class="wp-image-25045" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/02/figure-1.png" alt="" width="615" height="602" /></a> Figure 1 (click to enlarge)[/caption]

[caption id="attachment_25051" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/02/figure-21.png"><img class="wp-image-25051" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/02/figure-21.png" alt="" width="616" height="355" /></a> Figure 2 (click to enlarge)[/caption]

As the FII team examined these high-level numbers and dug deeper into the 2016 data, we identified several other important takeaways regarding the evolution of financial inclusion in Kenya:

Mobile money continues to lead other services at providing financial access and use cases, and is increasingly becoming a gateway to more advanced services, such as savings and credit, provided by banks that are linked to mobile money accounts on the backend. In 2016, mobile money access among adult Kenyans was 81 percent while bank access was only 31 percent. Similarly, 67 percent of adults were registered mobile money account holders while only 28 percent held accounts registered directly with a bank. Easy accessibility to mobile money points-of-service (PoS) relative to banking PoS locations has likely contributed to the success of mobile money. Almost 62 percent of Kenyans surveyed said they live within a kilometer of mobile money agents, while only 31 percent and 14 percent of Kenyan adults were within a kilometer of a banking agent and a bank branch, respectively.

The landscape of providers and products is changing rapidly as banks make inroads towards attracting and retaining users through innovative mobile money platforms and partnerships. Over the last few years, banks in Kenya have resorted to innovative ways of expanding mobile-enabled financial services, including through two different models: partnerships with mobile network operators (MNOs), and running a Mobile Virtual Network Operator (MVNO), which allows them to offer all of their financial services through a mobile platform. These new models allowed services such as Equitel and KCB M-Pesa to attract active registered mobile money account users who have historically used other mobile money products, such as M-PESA and M-Shwari, and can now use those provided by their banks.

Mobile money adds value to users’ financial lives by providing a convenient credit resource and savings utility. Our annual survey found that use cases for mobile money ran the gamut from facilitating payments, particularly P2P, to supporting borrowing and saving activities. In fact, approximately eight in ten Kenyan adults were savers in 2016, and out of which 54 percent used mobile money as a mode of saving. Similarly, more than six in ten adults had borrowed money, and 26 percent of which used mobile money as a loan source, compared to only 12 percent for banks.

Despite these clear advantages and use cases, FII data indicates that some aspects of mobile money user experience could still be improved. In 2016, mobile money users’ most commonly cited challenges included service downtime and mobile money agents’ lack of cash flow.

Even with these developments, Kenyans continue to express a demand for greater access to credit and historically underserved populations continue to be excluded from formal financial services. Overall, levels of financial inclusion are lower among women, rural populations, and those living below the poverty line compared to their male, urban, and richer counterparts. The largest gap in active registered financial accounts (amounting to 27 percentage points) was between those above and those below the poverty line. This gap could in part be due to the fact that these populations have lower levels of mobile phone ownership and financial capabilities. For instance, FII data shows an almost 20 percent difference in advanced mobile phone use between those above and below the poverty line (90 percent versus 73 percent, respectively).

These gaps in Kenyans’ engagement with formal financial services could be reduced by programs that focus on providing Kenyans with identity cards. The number of Kenyan adults who held the necessary ID to open a financial account dropped from 91 percent in 2013 to 78 percent in 2016. Tellingly, not having the required state ID was the main reason cited in the FII Survey by men and women for not registering a mobile money account and the second most common reason for not registering a bank account. In April 2016, the <a href="http://www.nation.co.ke/news/Govt-to-hire-1-200-more-clerks-to-issue-IDs/1056-3147972-smgo88z/index.html">government announced a plan</a> to employ 1,200 additional registration clerks to help Kenyans acquire identity cards before the 2017 general election. It remains to be seen what effect targeting this barrier will have on the 2017 FII data.

Boosting financial literacy is necessary to ensure that newly financially included Kenyans are prepared to use financial services successfully. FII found that only 17 percent of Kenya’s adult population was financially literate in 2016. As financial products proliferate and become more complex, it is especially important that users and potential users have the skills they need to navigate their options and use services in a way that provides welfare benefits, rather than exposes them to consumer protection risks. It is worrisome for instance that according to the FII data almost one in five borrowers in Kenya did not know their interest rates, or the cost of their loans.

Even as Kenya continues to progress towards improved financial inclusion, driven by mobile money and deepening engagement with advanced services, more must be done to ensure these advances are truly inclusive and result in meaningful outcomes for all Kenyans. The FII team looks forward to seeing how programs targeting barriers, such as financial literacy and phone ownership, and how innovative partnerships between banks and MNOs may continue to impact the data in the coming years.

What recommendations for accelerating financial inclusion in Kenya do you derive from InterMedia’s Data Fiinder? We’d love to hear from you.

For more information regarding the FII team’s research in Kenya, read the 2016 Kenya Annual Report <a href="http://finclusion.org/uploads/file/reports/Kenya%20Wave%204%20Report_24-May-2017.pdf">here</a>, or contact <a href="mailto:Cheronohb@intermedia.org">Beatrice Cheronoh</a>, Research Associate, Financial Inclusion Insights.

<a href="http://www.finclusion.org">Financial Inclusion Insights</a> is a research program funded by the Bill &amp; Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries (Bangladesh, India, Indonesia, Kenya, Nigeria, Pakistan, Tanzania and Uganda).

Featured image credit: <a href="https://www.flickr.com/photos/134037448@N03/30302946185/">WorldRemit Comms via Flickr Creative Commons</a>

Have you read?

<a href="https://cfi-blog.org/2016/11/16/what-does-indias-demonetization-experiment-mean-for-financial-inclusion/">India's Demonetization: One Year Later, What Was the Impact on Financial Inclusion?</a>

<a href="https://cfi-blog.org/2017/09/15/how-to-accelerate-financial-inclusion-in-pakistan-lessons-from-the-new-financial-inclusion-insights-data/">How to Accelerate Financial Inclusion in Pakistan: Lessons from the New Financial Inclusion Insights Data</a>

<a href="https://cfi-blog.org/2017/10/03/how-mobile-money-is-closing-the-agricultural-finance-gap-for-women-in-kenya/">How Mobile Money Is Closing the Agricultural Finance Gap for Women in Kenya</a>

&nbsp;

In Kenya, Financial Inclusion Shifts from Access to Advanced Use

Sub-Saharan African countries may be leading the world in mobile money and growth in access to accounts, but the state of financial consumer protection in Africa is in urgent need of attention.

In the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">EIU Global Microscope’s</a> 2014 overall rating of the policy environment for financial inclusion, African countries scored very close to the global average (44 SSA vs. 46 Global out of a possible 100). However, these countries were substantially below the average on consumer protection indicators – market conduct (27 SSA vs. 43 Global) and grievance redress (35 SSA vs. 45 Global).

These numbers have human consequences. The Smart Campaign commissioned research in two African countries – Benin and Uganda – which revealed the frequently harsh environment in which microfinance is conducted. In Uganda, <a href="http://smartcampaign.org/tools-a-resources/1030">research on what happens to clients who default</a> showed that, lacking regulatory oversight and the calming influence of credit reference bureaus, lenders in Uganda feel compelled to resort to practices such as rapid confiscation of a borrower’s assets. They are afraid that if they do not act quickly, the borrower may flee. In the <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">research on client experiences from Benin</a>, clients reported major gaps in trust and transparency. For example, many reported being surprised by fees that were not explained or expected, having no place to turn when problems arose, or being publicly shamed for late payments.

The research pointed to very low trust on both sides between providers and customers. In fact, in Smart Campaign conversations with African microfinance institutions about consumer protection, one of the most frequently asked questions is, “Who will protect us (the lenders) from them (the borrowers)?”

Perhaps this problematic environment partly explains why of the 43 institutions certified for good client protection practices by the Smart Campaign, only one, <a href="http://smartcampaign.org/certification/certified-organizations#Bayport">Bayport Botswana</a>, is in Africa. Quite a number of African MFIs have expressed interest in Smart Certification, and several have gone through certification missions. However, most scored relatively poorly, with a daunting list of items to be upgraded in order to pass.

In analyzing the experience of certification among African financial institutions, several observations stand out.

Onsite certifiers often find significant gaps between adopted policies and their field implementation. Procedures, staff training and internal controls – the internal elements that move policies into action – are often lacking, reflecting the overall institutional weaknesses of small financial institutions in the region. In many cases, complaints and grievance redress processes are either missing or dormant. These are correctable issues, but they take work. Certified institutions tell the Smart Campaign that one of the benefits from undergoing the certification process is that the certification analysis provides a detailed diagnostic of gaps in their internal processes and the impetus to close them.

More challenging are the difficult issues that may bite into the business models of the MFIs. These cannot be so easily resolved. Among them are issues connected with preventing over-indebtedness and promoting transparency:
<ul>
 	<li>Business models that approve risky loans, such as automatic renewals, top-ups or step increases without repayment capacity review.</li>
 	<li>Staff incentives that do not weight portfolio quality, leading to aggressive sales and risky loans.</li>
 	<li>Non-transparent prices through practices such as bundling of credit life insurance or compulsory savings requirements.</li>
</ul>
In dialogue with the Smart Campaign, institutions assert that they cannot change such practices without losing customers or reducing revenue. This may or may not be true, but it’s hard to blame organizations for reluctance to try out changes that they fear risk significant hits to the business model.

One bright spot is the interest among regulators to improve the consumer protection environment. At the recent Alliance for Financial Inclusion (AFI) meeting in Mozambique, the Consumer Empowerment and Market Conduct Working Group was very active, with strong representation from eastern and southern Africa. However, given the pace of legal and regulatory change, jurisdictional gaps, and deficits in supervisory capacity throughout the region, it will be some time before effective consumer protection regulation is in place. Meanwhile, as credit and other services are added to expanding mobile money rails, new consumer risks are emerging, and African regulators will have even more on their plates.

As a movement grounded in the industry, the Smart Campaign will continue to work with African financial institutions, associations and regulators to highlight the urgency of the need and to strengthen practices.

Have you read?

<a href="http://cfi-blog.org/2015/06/16/top-six-reasons-providers-dont-invest-in-client-protection/">Top Six Reasons Providers Don't Invest in Client Protection</a>

<a href="http://cfi-blog.org/2015/04/02/smart-campaign-announces-enhancements-to-client-protection-certification-program/">Smart Certification Announces Enhancements to Client Protection Certification Program</a>

<a href="http://cfi-blog.org/2015/08/06/three-cheers-for-the-smart-campaigns-certification-summit/">Three Cheers for the Smart Campaign’s Certification Summit</a>

Why Does Consumer Protection Lag in Africa?

&gt; Posted by Jayshree Venkatesan, Financial Inclusion Consultant

<img class="alignright wp-image-19264" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/thumb_8600a8fc229d41279b24e515cda53bf4.jpg" alt="" width="325" height="217" />The Pradhan Mantri Jan Dhan Yojana (PMJDY) Indian national financial inclusion strategy was launched with much fanfare exactly a year ago by the government. As we pass the first year anniversary, there have been a number of <a href="http://www.wsj.com/articles/indias-push-for-banks-for-all-leaves-some-still-outside-1428528601">reports</a> that indicate that the program is not as successful as claimed, either in reaching the poorest of the poor, or in preventing dormancy of accounts. The World Bank’s latest Global Findex study says the number of people accessing a formal bank account in India increased from 35 percent in 2013 to 53 percent in 2014. The same study also indicates that India is among the countries with the highest percentage of dormant accounts at 43 percent, meaning the PMJDY accounts that have been opened have a high likelihood of becoming dormant.

The idea of opening bank accounts to financially include the poor is by no means a novel idea, and has been tried in various forms over the past decade in the Indian context. While there have been challenges with access, I argue the bigger issue is account dormancy. In India, it’s often the case that after access is extended, accounts remain dormant, which results in high costs for banks. This in turn tends to add to the perception that the poor are unbankable and supports a vicious cycle with bad behavior by bankers to dissuade poor customers.

My research across 368 households in four districts in Tamil Nadu, a state that has fairly high literacy rates, social security programs, and access to bank branches, indicates that awareness about the PMJDY remains low at 16 percent of the households surveyed. If this is the scenario in a state like Tamil Nadu, it is safe to say that the situation is far worse in states that have lower bank branch penetration and social indices.

So, why do accounts turn dormant? One of the explanations continuously cited is the inability of the poorest to save. Even if one were to accept this argument, in the Indian context, the government has begun transfer of subsidies and benefits directly to PMJDY accounts, so there should be at least two transactions every month - i.e. that of benefits being transferred in, and being withdrawn. In reality, dormancy of accounts might be closer linked to lack of awareness of how the account functions and how its use would benefit the customers, even the poorest. Almost all banks in India are promoting financial literacy through camps and group classes. However, the <a href="http://www.hbs.edu/faculty/Publication%20Files/09-117.pdf" target="_blank">evidence</a> from financial literacy initiatives shows mixed results.

The answer to solving this problem might well lie in thinking beyond traditional financial literacy. Most financial literacy programs are geared towards providing information about a financial product, or a set of products. But if clients cannot establish the relevance of these product features for their day-to-day lives, this information is soon forgotten. The concept of financial capability, on the other hand, includes financial literacy, but also equips customers with the skills to understand their own financial circumstances and use this information, resulting in the uptake of financial services.

There are two aspects to financial capability to keep in mind. The first is to ensure that financial service providers have a strong understanding of their customers and their attitudes on finance. Providers need to understand their clients to the extent that they are able to develop and deliver the required financial products in an accessible and reliable manner. The other aspect is ensuring that product delivery takes place in a manner that equips the customer with empowering financial knowledge and skills, and that these translate into usage of the product.

In the context of the PMJDY, this would mean customers being aware of the fact that their savings account is bundled with life insurance, personal accident insurance, and an overdraft facility, which can be availed only when the customers transact through the account’s accompanying RuPay card and have a clear credit history. Having financially capable account holders would also mean they’re saving, in small amounts, and are aware of how to withdraw such funds from an ATM in the case of an emergency. That awareness and active use being the rule, rather than the exception, in my mind, would be the PMJDY program living up to its full potential.

In order to get to this state, financial service providers have to begin thinking about better ways to understand and engage with their lower-income customers, for that is when the leap from financial literacy to financial capability will occur.

Jayshree Venkatesan is a consultant specializing in financial inclusion. Learn more about her work <a href="http://www.jayshreevenkatesan.net/">here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/02/27/a-new-era-of-financial-inclusion-in-india-is-about-to-begin/">A New Era of Financial Inclusion in India Is about to Begin</a>

<a href="http://cfi-blog.org/2015/05/18/basix-a-different-take-on-building-financial-capability-in-india/">BASIX: A Different Take on Building Financial Capability in India</a>

<a href="http://cfi-blog.org/2015/05/22/fifty-eight-percent-of-women-in-india-report-difficulty-accessing-credit-savings-or-jobs-because-of-their-gender/">Fifty-Eight Percent of Women in India Report Difficulty Accessing Credit, Savings, or Jobs Because of their Gender</a>

In the Case of India’s PMJDY, Considerations for Avoiding Account Dormancy

[caption id="attachment_18360" align="alignright" width="331"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_final-fig10p_cropped.png"><img class="wp-image-18360" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_final-fig10p_cropped.png" alt="Account Use (Developing Economies) - Click to Enlarge" width="331" height="190" /></a> Account Use (Developing Economies) - Click to Enlarge[/caption]

Especially since the Global Findex report made headlines around the world with its finding that the number of financially excluded dropped from 2.5 billion to 2 billion during the period 2011-2014, I have been increasingly uneasy with equating account access as financial inclusion, and especially as equivalent to the essential concept of full financial inclusion as <a href="http://www.centerforfinancialinclusion.org/about" target="_blank" rel="noopener">defined</a> by CFI. The Center’s new publication “<a href="http://www.centerforfinancialinclusion.org/bythenumbers" target="_blank" rel="noopener">By the Numbers</a>” does an excellent job helping people to digest all the publicly available data about financial inclusion, and make sense of them. It also reinforces my unease.

Despite the progress in account openings, the report makes it clear that the number of people actually using accounts is unfortunately not growing. Even more worrying, it argues that most accounts “are not really functioning as the hoped-for ‘on-ramp’ to financial inclusion.” The risk, as I see it, is that by adopting a stunted definition of financial inclusion that emphasizes account openings, we may be measuring and incentivizing the wrong things. The report wisely urges “caution regarding the value of mass drives for account opening, such as mandated no frills accounts…”

While the available data may overstate progress in some areas, the data may understate it in others due to the tendency to focus only on transactions at formal financial institutions. As the report notes, the percentage of people in low and middle income countries who save increased from 31 percent to 54 percent -- quite a jump! -- over three years, but this “is not reflected in a commensurate increase in saving in financial institutions.” Global surveys tend to miss savings groups and microfinance institutions, which in many markets play important roles. The alarming gaps in data related to access among vulnerable populations are also noted.

[caption id="attachment_18366" align="alignright" width="330"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_r02-fig12_savings.png"><img class="wp-image-18366" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/06/cfi_by_the_numbers_r02-fig12_savings.png" alt="Saving Activity (Developing Economies) - Click to Enlarge" width="330" height="198" /></a> Saving Activity (Developing Economies) - Click to Enlarge[/caption]

Which brings us to the continuing relevance, and in my view the unique role, of microfinance in achieving full financial inclusion. Based on its assessment of the numbers and trends, especially those related to discouraging levels of inclusion and product take-up amongst the poorest and most vulnerable groups, the report posits that “microfinance providers will continue to be significant players in the delivery of financial services, especially basic credit and savings, at the base of the pyramid.”

My view, shared by many members of the <a href="http://microfinanceceoworkinggroup.org/">Microfinance CEO Working Group</a> (MCWG) that I Co-Chair, is that MFIs can play an important role in facilitating the elusive on-ramp between limited use of accounts including digital financial services and achieving the most robust vision of being fully included. This is one reason why Grameen Foundation is working hard to set up leading MFIs in the Philippines, India, and Kenya to play this essential bridging role. The MCWG is likely to have something formal to say about this later in 2015.

The report is chock full of interesting tidbits about the changing financial inclusion landscape:
<ul>
 	<li>While the gender gap in financial inclusion stubbornly persists, the urban/rural gap is slowly closing.</li>
 	<li>Countries with national financial inclusion strategies achieved double the growth in account access compared to countries without such a strategy in place.</li>
 	<li>Indian government incentives to provide microinsurance to lower income segments over the last decade have resulted in that country having 40 percent of the global total of microinsurance policies.</li>
 	<li>Four countries – Indonesia, Tanzania, Sri Lanka, and Pakistan – “became fully interoperable for mobile money” by the end of 2014.</li>
 	<li>Nokia recently released a $29 smartphone, which could presage the acceleration of the use of apps that make it easier for illiterate (or even non-English speaking) people to use digital financial services more.</li>
 	<li>Global actors in financial inclusion have tended to focus on large countries and countries where relatively easy progress was thought to be possible. Left unsaid is how many countries have been largely ignored and what their fates may be.</li>
 	<li>Most adopters of mobile money were already “banked.”</li>
</ul>
This excellent report should underscore the importance of shifting our attention from account access to the quality and value of financial services available to the base of the pyramid. In other words, our “north star” should be full financial inclusion. Furthermore, it shows that we ignore the real and potential contributions of actors other than formal financial institutions and mobile money operators – such as microfinance institutions, savings groups and other informal approaches – at our collective peril. To again quote the report, “full financial inclusion should consider informal services an important, ongoing part of the mix.”

At the outset of the report, the authors state that they have always considered the notion of <a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> as a “thought experiment.” To me, this notion calls to mind Professor Muhammad Yunus’ idea of creating a social fiction literature akin to science fiction, since so many things we imagined as science fiction a generation or two ago are realities today. What we imagine can become reality, and often does. How important then, that we train our imaginations on the robust notion of full financial inclusion rather than on something much more limited, and potentially limiting, than this bold and compelling vision.

Figures credits: "<a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/by-the-numbers">By the Numbers</a>" - CFI

Have you read?

<a href="http://cfi-blog.org/2015/06/04/by-the-numbers-benchmarking-progress-toward-financial-inclusion/" target="_blank" rel="noopener">By the Numbers: Benchmarking Progress Toward Financial Inclusion</a>

<a href="http://cfi-blog.org/2015/04/22/financial-inclusion-by-2020-it-depends/">Financial Inclusion by 2020? It Depends</a>

<a href="http://cfi-blog.org/2015/04/28/global-findex-offers-next-steps-for-how-to-give-people-bank-accounts/" target="_blank" rel="noopener">Global Findex Offers Next Steps for How to Give People Bank Accounts</a>

&nbsp;

Access Usage Gap

Meet the Experts

Mayada El-Zoghbi

Filter

Filter

Furthering Digitalization’s Potential for Financial Inclusion: Insights from Sub-Saharan FSPs, Supervisors, and Associations

Workarounds Don’t Work: Gender-Aware Financial Services Must Help Address Discriminatory Norms

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

Counting More than Accounts: What Can Frequency of Transactions Tell Us About Financial Inclusion?

The Outlook for Universal Financial Access in 2020

Findex Lead Discusses Gender Gap, Account Usage, and More

Webinar: Bridging the Digital Gender Gap in Financial Inclusion

Benchmarking Financial Inclusion Progress

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

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

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

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

New Global Findex: 69 Percent of Global Population Is Banked

Financial Inclusion in the U.S. – Are We Making Progress?

In Kenya, Financial Inclusion Shifts from Access to Advanced Use

Why Does Consumer Protection Lag in Africa?

In the Case of India’s PMJDY, Considerations for Avoiding Account Dormancy

Considerations for the Pursuit of Financial Inclusion - Beyond Account Access