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> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on the World Bank Private Sector Development Blog.
The issue of financial inclusion seems to be everywhere – from the World Bank Annual Meetings to the new UN post-2015 development goals. It’s got buzz in the private sector, public sector and development organizations big and small. Policymakers are increasingly making financial inclusion a priority through specific financial inclusion targets and commitments, such as the Alliance for Financial Inclusion’s Maya Declaration. In fact, World Bank Group President Jim Yong Kim recently launched an initiative “to provide universal financial access to all working-age adults by 2020.”
As we know from the Global Findex, more than 2.5 billion people lack access to even a basic bank account — a huge gap in inclusion and an enormous opportunity. Demographic changes, economic growth, and advances in technology are making global financial inclusion more possible than ever before. With a massive new market of people demanding new services as incomes rise among the bottom 40 percent, the stage is set for dramatic leaps in access in the next few years. Emerging technologies are bringing down costs and opening new business models while providing greater access to a range of services.
Recognizing that the time is ripe for significant progress on financial inclusion, the Center for Financial Inclusion developed a consultative process aimed to raise everyone’s sights about the possibilities of achieving full inclusion within a foreseeable timeframe – using the year 2020 as a focal point. The process sought to build a more cohesive financial inclusion “community” through the development of a common vision. It brought together experts from the World Bank, IFC, and CGAP along with many representatives of the private sector and the social sector. Financial Inclusion 2020’s Roadmap to Financial Inclusion is the result.
With all of the financial inclusion buzz, you would think that we would be closer to full inclusion. But if closing the gaps were easy, it would have happened already. Many factors still stand in the way. In the case of regulatory accommodation to new technology, for example, the gaps result from such factors as the pace of the spread of know-how among policymakers globally, national legislative and political processes, and uncertainty about the risks involved with new models. In the case of fully addressing the needs of customers at the base of the pyramid (BOP), gaps stem from a combination of doubt among providers about the likely profitability of these customers and limited knowledge inside institutions about the financial lives of the poor. In the case of client protection, providers face perverse incentives, while many regulatory bodies are only beginning the major task of establishing robust oversight of market conduct.
We see encouraging examples of financial inclusion in the most remote corners of the world, often done by surprising actors. However, the momentum is uneven. The Roadmap process included many of the thinkers and entrepreneurs behind such initiatives. Each of the five working groups — Addressing Customer Needs, Technology, Financial Capability, Client Protection and Credit Reporting — has developed a roadmap to direct the world community toward the actions most needed to achieve FI2020’s vision of full financial inclusion. Most of the recommendations are addressed either to governments or to providers, but they point the way to actions needed by a range of supporting organizations, including multilateral and bilateral organizations, donors, social investors and non-profits, at both the global and the national levels.
> Posted by Sebastian Groh, Project Manager, MicroEnergy International
The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
United Nations Secretary General Ban Ki-moon recently called upon the international community to commit to a new groundbreaking initiative seeking Sustainable Energy for All (SE4A) by the year 2030. At MicroEnergy International (MEI) we have been working towards this goal since 2002 by supporting microfinance institutions (MFIs) in the process of developing and providing “green microloans,” financial products that help clients finance a renewable or efficient energy system for their home or business. Our work is based on the fundamental belief that the relationship between energy inclusion and financial inclusion is a critical impact point that has positive effects on the poverty levels of low-income clients.
Perhaps the linkage isn’t immediately clear, so a few examples will help us explain.
Financial inclusion leads to energy inclusion. Access to finance can lead to energy inclusion simply in terms of affordability and financial means. People who have access to financial services are able to finance their basic energy needs and either pay for grid-supplied electricity or purchase a distributed energy generation system of their own. These systems have a prohibitive initial investment burden that usually cannot be covered by those at the base of the pyramid (BoP). Innovative green credit design allows clients to pay in monthly installments that correspond to their current expenditures on energy appliances and sources as well as potential savings and income generation opportunities. A scheme of that type has paid off for about two million Solar Home System users today in the country of Bangladesh, according to the World Bank’s IDCOL Solar Home Systems Project.
> Posted by Sonja E. Kelly, Fellow, CFI
Remember when you were young, and a sandbox presented an opportunity to build your own castle? The GPFI (the Global Partnership for Financial Inclusion) Basic Set of Financial Inclusion Indicators and its accompanying website is kind of like that—it offers a space in which users can customize and test their own definitions of financial inclusion through an interactive platform, building off of a set of key “ingredients” in the data world.
We’ve talked before about the GPFI’s “Basic Set,” but we wanted to be sure to highlight it again, given the attention that it has received over the past few weeks alongside its official release on April 21 at the 2013 World Bank Spring Meetings.
In offering this service, the GPFI addresses one of the biggest challenges in financial inclusion: measurement. We all seem to have a general definition of financial inclusion, but when it comes to operationalizing this definition, things get complicated. Should the use of financial services be an individual or a household measure? How can we parse out (and should we parse out) financial tools used for businesses from tools used for personal things? Are surveys run by international organizations the best source of data or are numbers reported by central banks more reliable? The Basic Set remains fairly agnostic on these questions, instead giving highlights from all of the data—SME, personal, supply-side, demand-side, international organization-led, and government-reported.
See, for example, the diversity of indicators in the GPFI Basic Set as applied to sub-Saharan Africa. “Accounts” includes a demand-side (individual) measure of accounts, SME accounts, and both measures for women in particular. Read the rest of this entry »
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published in the Guardian Development Professionals Network DAI Partner Zone.
When the Global Findex, an unprecedented demand-side survey by the World Bank and Gallup, was released last year, it marked the first time financial inclusion statistics from the demand side were available on a globally consistent basis. The headline: 2.5 billion adults (including 59 percent of adults in developing countries) are “unbanked” — that is, they do not have an account at a bank or other formal financial institution.
Why is having a bank account the top indicator of financial inclusion?
Setting aside the obvious point that bank accounts are among the easiest indicators to track, the policy focus on “banking the unbanked” seems to rest on the premise that bank accounts have a special role in financial inclusion. Three important functions ascribed to bank accounts are: a place to save, a money management hub, and a way to establish an ongoing relationship with a formal financial institution (an “on-ramp” to other services). These assumptions appear to underpin much of financial inclusion thinking and policy.
If a bank account is a money management tool – a central node through which a person’s financial transactions flow – it will be used regularly. This is the way most people in the developed world (and, I suspect, most financial inclusion policy makers) use bank accounts. However, many accounts in the developing world are relatively inactive. Taking the frequency with which people make more than two withdrawals per month as a proxy for operating an account as a money management hub, the following chart divides the “banked” into low – and high – activity accounts.
> Posted by David Grace, Managing Partner, David Grace & Associates
As noted in a recent blog post by Beth Rhyne of CFI, supervisors need to upgrade their skills if they are going to keep pace with an additional 2-3 billion people over the next decade potentially entering financial services for the first time.
The financial inclusion movement is taking shape at the same time that banking supervisors globally are searching for more “forward-looking” indicators to help them detect early problems in institutions and financial systems. Whether it’s the subprime crisis in the United States and Europe, or over-indebtedness problems in Bosnia and Southern India, many of the early warning signs were evident in consumer abuses before they showed up on the balance sheets and capital ratios of institutions. As such, one of the best avenues for supervisors to improve their quantitative-focused prudential oversight is to start putting greater emphasis on qualitative-based consumer protection indicators.
Through a World Bank-sponsored program in the Eastern Caribbean to improve the quality of supervision of non-bank financial institutions, the Smart Campaign inspired consumer protection supervision to become integrated into new prudential examination procedures.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Accessible savings services make countries more resilient during times of financial crisis, a new report from Rui Han and Martin Melecky of the World Bank finds. It’s been established that access to savings leads to increased financial stability at the individual and household level, but this report is the first empirical evidence of this relationship at the financial systems scale.
As the current banking crisis in Cyprus reminds us, during times of financial uncertainty and crisis, the potent threat of widespread bank withdrawals (bank runs) emerges. In 2009, the volume of global deposits shrank by about 12 percent in a ratio compared to GDP.
The report investigated the effect of bank deposit service accessibility on the stability of bank funds in 113 countries during the 2008 global financial crisis. It found that a 10 percent increase in savings service accessibility mitigates a country’s deposit withdrawal rates by about 4 percent, with this link spanning nations of all income levels and strongest in middle income countries. One reason for this increased readiness of clients in middle income countries to withdraw funds is low familiarity and trust of banks.
> Posted by Sonja E. Kelly, Fellow, CFI
There’s a lot of data out there. And some of us are brave enough to use it (including you, my friend).
Recently we released an interactive Data Explorer tool and individual Country Profiles, allowing users to visually explore financial inclusion data in comparison with other development indicators in one central location. You can see our analysis of some of the data, but more importantly, we would like to invite you to explore the data for yourself.
For those interested in financial inclusion figures in specific countries, regions, or income groups of interest, visit Country Profiles. There we display data from the Global Findex along with demographic data relevant to understanding financial inclusion across the lifecycle. As we continue our own analysis of global trends, we will add figures on income, urbanization, technology, and more for each country.
Click on the financial inclusion bars to see a breakdown of the data by client segment, and use the tool to understand why or how people use financial services in particular countries. At the bottom of the page, you can interact with the demographic data by scrolling through the years to see past and projected population trends from 1950 to 2100. (This is very cool.)
> Posted by Sergio Guzmán and Sonja E. Kelly, Smart Campaign Lead Specialist and Fellow, CFI
Some call them the lower middle class, some call them assets-poor, some refer to them as the 4-10s for their earning average of $4 to $10 per day. In a publication released this year, the World Bank called this group the “vulnerable class,” bridging the gap between a class they refer to as “poor” and the class traditionally known as the “middle class.” Two of the lead authors on the publication, Dr. Augusto de la Torre and Dr. Julián Messina, presented their findings at a recent event at the Inter-American Dialogue, a forum for research and conversation centered on Latin America.
The authors distinguish between two economic strata. The first is the vulnerable class, which is above the poverty line, but is still in danger of losing their discretionary income. The second is the middle class, which is firmly above the poverty line, and is unlikely to lose their discretionary income. The vulnerable class is defined by a narrow dollar range—only $4 to $10 per day. Despite this narrow income definition, in the last decade this class has grown to now contain the highest proportion of the Latin American population when compared to other economic classes. (The same phenomenon is appearing in other regions, as well, although that is a story for another day.) The graph below comes directly from the authors’ presentation (for more on the report’s methodology, see the publication here).
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
A who’s who of the global financial education community came together this month at the ninth annual Citi-FT Financial Education Summit in Manila. I was excited to attend this signature event, organized by the Citi Foundation, the Pearson Foundation, and the Financial Times, and I took home a number of important insights. Most importantly, it is clear that we need much more information and evidence about what works in regards to building financial capability.
> Posted by Leora Klapper, Lead Economist, Development Research Group, World Bank
Yesterday marked another big step forward in the long-term effort to fill in the financial inclusion data landscape. We in the World Bank’s Development Research Group published the complete micro dataset of the Global Financial Inclusion (Global Findex) dataset—the first comparable, cross-country, demand-side data that studies how adults worldwide manage their daily finances and plan for the future.
Ever wondered what percentage of Sub-Saharan women under age 30 with an account use a community-based group to save? The answer is 26 percent but the broader point is that whether you’re looking for a specific statistic or interested in doing your own analyses on the financial behaviors of individuals, you now have a powerful new tool at your disposal. We’re talking over 150,000 individual-level observations, representing adults in 148 economies, and 97 percent of the world’s adult population (the country-level data was released in April). Users can download the complete worldwide dataset, or datasets by country.