Four Drivers of Change for Financial Inclusion in 2017

03 January 2017

Open Letter from Greta L. Bull, CGAP CEO

Returning from the holidays, we at CGAP are turning our attention to the future. I used the down time over the break to reflect on the topics I believe are likely to shape the future of financial services for the poor. Building efficient, large-scale digital ecosystems that dramatically reduce the cost of delivering financial and other services has been an important focus of CGAP’s for many years. But what do we think will enable the emergence of such large ecosystems and ensure their broad accessibility?

I would posit that four factors are changing the landscape for financial inclusion before our eyes:

Technology and distribution

Technology is a clear enabler. None of what we have seen emerge in the last 10 years would have been possible without technology. But technology on its own is not the answer: distribution is the other side of the equation, and its importance is often overlooked in the excitement over new technologies. To access digital financial services, access to a mobile connection is important, but it is equally important to be able to convert cash to digital money and, at least for now, back into cash again. So mobile phones have been important in places like Kenya, but the real game changer has been the emergence of large and well-functioning agent networks. Until accounts are more widely available or people are willing to accept the leap into purely digital money, agents will remain a fact of life.

Man uses mobile phone amid coconut trees

Photo Credit: Eakarin Ekartchariyawong, 2016 CGAP Photo Contest

Policy and regulation

Policy and regulation have always been important, and that role has not diminished. But it has changed. In East Africa, we are seeing a shift from open experimentation to a more coordinated effort to build interconnected services, such as interoperability and cross-border remittances. We are also seeing an increasing focus on competition policy and consumer protection in a number of markets. Governments are increasingly channeling payments to citizens through digital infrastructure and, in some markets, citizens are able to pay governments too. Given the large volumes of money governments drive through the system, this is having an important impact on the viability of digital finance operations.

In India, we are seeing a government that is pushing on all the levers to develop a viable, large-scale digital ecosystem, from building unique biometric identification to pushing government payments through digital channels and integrating various financial services providers into a unified payment system. It is still too early to declare the Indian experiment a success, but we are learning a lot about the public goods that need to be in place for a digital marketplace to function efficiently for the poor, and what the role for the private sector can be.

Around the world, we have much better evidence on what works and what does not in building enabling policy environments, using the levers of government policy and regulation. We are also seeing the impact that global financial policy can have on emerging markets, particularly the effect of de-risking on a number of markets. Even in developed markets, regulators and policy makers are grappling in novel ways with challenges to traditional banking models from disruptive fintechs.

Open ecosystems

We are increasingly seeing the emergence of collaborative approaches in the commercial sector that help broaden the digital ecosystem. Sometimes, these emerge as purely private initiatives, sometimes they are pursued explicitly as public goods. Two important examples are interoperability and open application programming interfaces (APIs).

Interoperability is important because it broadens a networked system, creating a frictionless experience for users, and enables participants to compensate each other for use of their infrastructure. For example, rather than juggling multiple SIM cards to send funds from one mobile money service in Tanzania to another, consumers can now send money across services at no cost to the consumer beyond regular money transfer fees. And agreements are in place that define the rules and commercials for how that transaction will work. So instead of having four smaller mobile money ecosystems for person-to-person (P2P) transfers, Tanzania now has one large interconnected one. Early evidence shows that removing friction between operators is growing the overall size of the P2P market in Tanzania.

Open APIs increase the size of the ecosystem in different ways. When infrastructure providers like banks or mobile network operators open up their APIs, they take the friction out of integrating to the main service for smaller providers of financial services. By removing that cost from the system, small innovators can develop, test and refine services for consumers at a very low cost, and may hit on a formula that users like and want to use (think of the Apple App store and the proliferation of services available there). The innovator can then provide the service over the rails of the larger mobile money service, to the benefit of both providers. Without open APIs, small companies must negotiate commercial arrangements with the large provider and then navigate the complex process of technical integration. Open APIs make this process far more efficient and competitive. Both interoperability and open APIs are by nature complex, as they require fierce competitors to cooperate in ways that may seem counter-intuitive. But over the long term, they have the potential to expand the value of the ecosystem for both providers and consumers by fostering innovation and a more competitive ecosystem.


Data is emerging as a topic of great importance. Connected services mean that poor people, who previously left no data trail, begin to exist in a digital world. Providers are increasingly capturing data on consumer behavior that has wide applications — from scored consumer credit, to the provision of off-grid solar home systems, to building better products for consumers, to providing primary health care services to the poor. Building profiles of poor people will enable providers to deliver services to them in ways they could never have previously done.

But data also brings new risks. Who owns the data generated by our interactions with e-commerce and social media sites? How secure are mobile money systems? How do we know how our data is being used? How likely is it that the poor will be at risk of over-indebtedness, fraud or theft? These are all important aspects that require attention.

data word cloud

These are all topics on which CGAP is actively focusing its attention in the coming year. At the end of last year, we released a landscaping study on emerging trends in interoperability around the world. We brought together different industry players to discuss open APIs and will continue to build on this experience in the coming year. Data is an emerging area of importance, both for the financial and non-financial services it enables, but also for the risks it poses for low-income consumers. Policy and regulation have been at the heart of our work for many years, and we continue to contribute to global and country-level debates on what works and what does not, most recently in an examination of the key regulatory enablers of digital financial services.

Large, inclusive digital ecosystems provide unprecedented opportunities to generate growth and development, leveraging both financial and non-financial services. CGAP sees it as its core mission to ensure that these innovations evolve in ways that benefit the poor. We look forward to another exciting year!


Submitted by Gideon Isaac Omoyibo on
Thank you for the direction. It will go a long way I helping us focus what what is necessary in 2017. I love the fact that distribution was mentioned because many of the financial inclusion projects underestimated the need for a strong distribution network that will support the drive before it can autorun. M-Pesa model was successful because distribution was properly structured. This is particularly important where some institutions in a bid to maintain control are unwilling to allow interoperability. But like experts have predicted, they will be forced to work with other stakeholders or become obsolete. Thank you for the insight

Submitted by Hugo Cuevas-Mohr on
Thank you for mentioning remittances and De-Risking. I work hard in finding, helping, promoting, financial inclusion using remittances as a tool and because some early efforts were not successful for reasons that were not fully analyzed (I do agree is not easy) we have missed an enormous tool that should be used much more to bring migrant families to become more financial included and financial savy. And yes, technology is now a new tool that can be used in conjunction with remittances. Yes, De-Risking is crippling the Non-Bank remittance industry but at the same time Banks and other active market players are abandoning cross-border money transfers with reputation & regulation fears while central banks and politicians seem to be to slow at reacting while everyone scrambles for solutions.

Submitted by [email protected] on
I think, it has shown very clear outline for the Micro Finance Industry, as a whole.

Submitted by Noel Ihebuzor on
I found this to be an excellent summary of the situation with regard to Financial Inclusion, its benefits when it has been applied in some developing economies and some of the challenges going forward with it. One of these challenges, in my view as one who serves on the governing council of Grooming Centre, (Nigeria's second largest MFI), is how to design platforms and processes that lessen the inhibitive effects of illiteracy on the rural based financially active poor in the short term whilst targeting broadened literacy in the medium and long terms. This would address some of the concerns raised by Prakash Dhaka in the first comment. Establishing more financial units in rural areas and incentivizing interoperability of these units would also be a critical next step, especially for countries with severe shortfalls in formal financial institutions.

Submitted by emmanuel maliti on
Many thanks for a concise summary of trends in the financial inclusion field especially the 'digital' side of inclusive finance. While tremendous and commendable progress is noted, we shouldn't forget that the broad and general use of the term 'the poor' misleads and hides the struggles and challenges to financially including the poor (the poor as defined by the scientific tools such as poverty lines, gaps, multidimensional etc)‎. Attentive to scientific definition of the poor is important as 'poverty theory' remains a relevant aspect in terms of how can the 'poor' rural households be financially included in the digital world. If the really focus is on the poor, the year 2017 and beyond should witness increasing efforts on testing and experimenting tools that works for the poor. On the knowledge creation side, some interesting findings particularly from the field of impact research are emerging and hopefully we will observe more research findings in the year 2017. Recent papers by Suri and Jack (2016) and one on digitization of savings groups (I struggling to remember the authors) offer interesting knowledge on poverty reducing effects of digital financing (the former paper) and adaptability of digital financial tools by the poor (the later paper). ‎Producing knowledge is one thing, while the ability and incentives to use knowledge to influence design and restructuring of development projects is a different thing. The later remains a serious weakness despite a rich body of research offering clear innovation paths in financial inclusion that could boost impact or improve operation models of development initiatives

Submitted by Prakash Dhakal on
Could it be possible for the developing country, where almost huge population are financial illiterate and where there is no proper banking channel and networks? Could digitized money cost can be bear by the poverty line people, who get the deprived lending at high cost of fund and returning to financial institutions by increasing debt burden rather from the invested occupation?

Submitted by christopher williams on
That is an excellent summary of the current market and what is possible in the future. I would only want to add a few thoughts that might be of use: 1/. Data privacy is a big issue in much of the world, notably in Europe, and can be connected with the need for security for financial transactions (as well as personal information on health and education). The development of biometric security is an important step to identification of every citizen, ideally by use of iris readers which can be 100% secure from birth to death. How to manage this in a cost-effective manner should be a key target for all aid agencies; the UNHCR's system in Jordan is an excellent model to follow. What is critically important is that such biometric data is seen to be used as a provision of benefits, rather than as a security device. The image is important as to why one should sign up; while the data can also have value for law enforcement, it will fail as a system if this is seen as the purpose. 2/. The worldwide usage of social media, and the availability of mobile phones at low cost, opens up what may become a trend in personal support, namely in linking individuals in donor countries with the needy in LDCs. Personal involvement is far more effective in ensuring continuance of support, whether that be in motivating those looking to best develop and use their skills, or to help those who have the greatest problems. This assistance can be particularly encouraged if remittances can be enabled at the lowest fee .. and with the highest FX value .. to optimize its usage, and hopefully discourage the use of hawala networks which are frequently run by criminal groups. 3/. While there is considerable value in encouraging electronic payments, we must recognize that cash is still the only acceptable option in much of the world. What can still be valuable is using cash as the payout method, but encouraging electronic value collection through the provision of incentives as add-ons to the cash. I hope these comments help - and please keep up the great work you do. All the best for 2017 Chris

Submitted by Ramesh Deshpande on
In most countries, financial inclusion is often narrowly understood or implemented. What clients need these days is a comprehensive service covering acceptance of deposits with diverse options in terms of interest rates and maturity of deposits, access to credit--short to medium to long term with or without collateral, digital and manual payment services, and above all ensuring safety of funds and their remunerative deployment within a sound framework of risk management. MFIs or FIs providing partial financial services need to collaborate with other financial institutions so that clients have efficient finacial ecosystem overall. CGAP needs to frequently emphasize these messages and instruct financial institutions, especially MFI how to build this kind of complete financial service ecosystem. .

Submitted by Y P Issar on
Thanks for the apt summary of key current trends in financial inclusion(FI) concerns space. While digital is very important, a supporting brick & mortar distribution run by humans is equally vital to give stability to FI efforts and act as pulpit to take it to the next level. While your emphasis on distribution is appreciable, what matters is the amount of money, the donors, especially with stake in digital solutions, are ready to spare for this. Certainly agent distribution is slow to expand and costly to maintain. Another issue in distribution is its thin spread with poor linkages with banks/ cash chains,etc. In 2017, we should also concentrating on weeding out agents numbers which have long back disappeared due to various genuine reasons. At the end of 2017, knowing where the actual numbers in distribution stand shall be a good achievement.

Submitted by Ricky on
Comprehensive analysis Geeta. Thank you. However, since I work for policy, it open my mind how can we accelerate financial inclusion after we providing all four drivers. I think we need single leadership and killer application. Mostly financial inclusion effort aim to the grass root that difficult to change their habit, we need killer application that must be ordered by a strong leader. This can stimulates the four drivers as well.

Submitted by Graham A. N. Wright on
Great analysis Greta - and particularly good to see the emphasis on the dull but fundamental issue of distribution and agent networks for cash in/out. These remain the weak spots for most of the non sprinter deployments limping along without achieving scale ... we need to think again about most of these, it makes little/no sense for each provider to build their own independent agent network. See Re-Imagining the Last Mile – Agent Networks for a discussion of this.

Submitted by James Hochschwender on
Having been a commercial banker before first getting involved in the early 1980's in promoting microfinance, and giving the answer to Robert Christian's question in 1996 about where I thought MF was going that once MF reached a certain scale, commercial banks would step in and take it over because of their much greater back office systems capabilities, it has been interesting to see how that is playing out with technological advances and their corresponding policy and regulation evolution. I thank you, Greta, for this concise but precise summary of where we have arrived and what CGAP's core mission will focus upon in the coming year and beyond. Good to acknowledge that there still is much left to be done before we have a truly inclusive, and, therefore, cost-efficient financial services sector. One thing, that you touched upon but which may require more emphasis, is the interlinking of other non-financial service sectors stakeholders in the financial services process as a very important element of making both be more inclusive. For example, health services and other private and government services utilizing interoperable service provider search, through appointment through delivery and payment systems to make the entire process more seamless, efficient and cost-effective.Best wishes for 2017!

Submitted by Adeola Suleiman on
Thank you for broadening the financial inclusion. But is micro-insurance no longer reckoned as a critical product for the poor in the face of increasing fire incidence/ floods in city markets resulting in huge losses to the poor? Please look into this. Thanks.

Submitted by Dr M V Narayana... on
It is to be examined the feasibility of using the UPI in India which is interoperable among all major banks for P to P, G to P, P to B mobile money transactions as has being done by M Pesa alone in Kenya. Banks can use their BC / merchants network as a service point in each of their service area villages. Can CGAP take an initiative to take it forward since Govt of India is also bullish about Digital Financial Inclusion

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