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> Posted by Jeffrey Riecke, Communications Associate, CFI
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Last week global leaders across industries gathered in the tiny mountain town of Davos, Switzerland for the 2015 World Economic Forum (WEF). (Though you probably already knew that, given the annual event’s ever-swelling stature and press.) The WEF fosters strategic dialogues in the hopes of developing ideas, insights, and partnerships around the most pressing issues and transformations reshaping our world. This year’s WEF included sessions from Jack Ma of Alibaba on the future of commerce, German Chancellor Angela Merkel on global responsibilities in a digital age, IMF Director Christine Lagarde on global monetary policy, former Israeli President Shimon Peres on political affairs affecting the region, and Bill Gates on sustainable future development. Of course we were following the topic of financial inclusion, and the action that got underway made it a week worth noting. Here’s a snapshot of some of the financial inclusion happenings at Davos.
In the “Inclusive Growth in a Digital Age” session held on Wednesday, a panel, which included MasterCard CEO Ajay Banga, considered how our age of digitization can confront income and wealth inequality, support investments in education and work-based training, and address vulnerable employment. Among the points of discussion was mobile phone penetration leveraged for financial services access. A full video recording of the session is available, here.
> Posted by Jeffrey Riecke, Communications Associate, CFI
Accurately assessing financial inclusion levels is fundamental for guiding inclusion efforts, but doing so on a large scale remains an issue, in spite of a growing supply of data and resources. A new composite index from the International Monetary Fund aims to change this. The new tool incorporates multiple inclusion dimensions and advanced methodologies, creating the ability to generate easily comparable inclusion calculations at the country, region, income, or even operational level.
ATM, Bangkok, Thailand
The new index addresses criticisms of previous financial inclusion indices, particularly the inability to accurately incorporate multiple financial inclusion dimensions into one tool. The index was built using data from IMF’s Financial Access Survey and from the World Bank’s World Development Indicators dataset. Released late last month, along with the tool, the IMF published the results of running the index using the country information included in IMF’s dataset for 2009 to 2012.
The index is based on a definition of financial inclusion that incorporates the dimensions of outreach, usage, and quality of financial services. To capture outreach, the index employs the variables of number of ATMs and financial institutions per landmass or adult population. According to the World Bank Global Findex, out of the 2.5 billion people who are excluded from formal financial services, 20 percent cite physical distance from the point of service as the main reason for not having an account. For usage, the index incorporates the variables of percentage of adults with at least one type of regulated deposit account, and percentage of adults with at least one type of regulated loan account. Although the IMF recognizes services quality as cornerstone to inclusion, they indicate there is not yet ample data to enable its incorporation in the index. However, expanding the index in future iterations to include quality is indicated as a possibility.
> Posted by Vikas Raj, Senior Investment Officer, Accion Venture Lab
Last week, Raghuram Rajan was officially inaugurated as the 23rd Governor of the Reserve Bank of India. Rajan’s appointment has been greeted by a near obscene amount of excitement and adulation here in India, even by the standards of an often excessive Indian press. The front page of The Economic Times on Thursday (image at right) has Rajan sliding across the page, James Bond-style, rupee-barreled gun in hand. I am very much looking forward to seeing Janet Yellen or Larry Summers do the same.
Rajan’s academic credentials and work experience are indeed impressive – his previous position was chief economic adviser to the Prime Minister, and before that he was chief economist for the International Monetary Fund – but his main claim to fame is correctly predicting in 2005 that risky credit markets in the U.S. could lead to a global financial crisis. That position brought him much derision at the time, including from the likes of Larry Summers, but have of course since proven to be prescient.
But regardless of the strength of his professional and academic background, Mr. Rajan faces a herculean task as the new RBI Governor of a nation facing some serious economic crosswinds. India’s economy is growing at its most tepid pace in four years, its stock market has tumbled in recent months, and inflation continues to rise unabated. Perhaps most strikingly, the rupee has devalued versus the dollar by nearly 20 percent over the last four months. In the meantime, a national election is coming in the spring, which has effectively made consensus and compromise in the always partisan Indian government nonexistent. It will take all of Rajan’s skill to right the ship.
For those of us in the financial inclusion industry here in India, expectations are doubly high. India’s broader travails as an economic laggard affect us deeply, and Rajan’s initial statements and actions as Governor imply, at least, that he is willing to make big changes to help solve short-term monetary ills. If the initial reaction is any indication, Rajan’s presence and changes could actually help – the rupee rose 2.1 percent against the dollar and the Sensex index jumped 2.5 percent on Thursday. Getting India back on track is crucial for the financial inclusion space – low economic growth and persistent inflation hurt low-income populations in many different ways, including leading to fewer construction and manufacturing jobs and higher food prices.
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