From Microfinance to Financial Inclusion: Reflections on 20 Years

2015 marks a good year for financial inclusion. At the IMF/World Bank spring meetings, several key actors, including the World Bank itself, committed to universal financial access for one billion people by 2020. Later, 193 member countries at the UN General Assembly endorsed the Sustainable Development Goals, with financial inclusion being incorporated into those goals. As the old ad used to say, “We’ve come a long way, baby.”

I have had the privilege of working in microfinance and financial inclusion for the past 20 years. My first exposure occurred while at Citibank when I traveled with ACCION to visit its microfinance operations in Argentina and Paraguay. That trip, along with other experiences, compelled me to leave corporate banking for microfinance.

Since then I’ve worked at a microfinance network (Women’s World Banking), a microfinance investment fund (Blue Orchard Finance), and now a donor (The MasterCard Foundation) which funds financial inclusion programs. This has allowed me to experience the evolution of microfinance to financial inclusion from different perspectives.

In my view, there have been eight “big developments “in the last 20 years:

• The transformation microfinance NGOs to banks, and their commercialization;
• The growth of microfinance investment funds;
• The first IPO: Banco Compartamos in Mexico;
• The first signs of trouble: the crisis in Andra Pradesh, India
• A recommitment to the importance of savings, especially informal;
• The groundbreaking research on portfolios of the poor;
• The spread and active usage of mobile financial services; and
• The global commitment to achieve universal financial access.

Overall, these developments have been good for clients in that they have helped expand the range of financial service providers, increased the number of products and services, improved access to hundreds of millions of people, identified the need for client protection and transparency and brought financial inclusion into the development mainstream. We need to do more, however, and it’s my hope that in the next 20 years, if not sooner, we can truly achieve full financial inclusion.

Central to this is a better understanding of what clients need and how financial services can be made available to them in ways that align with how they live their lives. This calls for paradigm shifts and approaches that put clients at the center of financial inclusion.

The MasterCard Foundation follows this approach. We have funded research and projects that focus on client centricity, the central theme of our annual Symposium on Financial Inclusion. This year, our key topics focus on client-centered leadership and organizational culture, the client experience and the business case for client centricity. Speakers will represent telecoms, consumer goods companies, fintech firms, microfinance institutions, commercial banks, and insurance companies. We also award a prize to a developing country financial services provider for being best at client centricity.

We believe that by building this larger community, which shares best practices and challenges, client centricity will become embedded in the way these organizations work and create a broader demonstration effect. Clients will not only access services but use them continuously and effectively to improve their lives.

CGAP has been at the forefront of many of these developments over the past 20 years and has also invested heavily in client-centric work. It has partnered with us in pilot projects, investing in new research and investigating the business case.

Through it all, we have come to know that financial inclusion is not an end in itself. Rather, it’s a critical factor for enabling people to access better economic opportunities and improve their lives. The evidence is clear:

• Financial services have a positive impact on a variety of microeconomic indicators, including self-employment, business activities, household consumption and well-being;
• There is a growing body of evidence (i.e., 31 randomized evaluations) about the beneficial economic impact of using savings, credit, insurance and payments;
• Savings help poor households manage cash flow spikes, smooth consumption, and build working capital. Access to formal savings options can boost household welfare;
• Micro-insurance can be an important mechanism for mitigating risk, especially for smallholder farmers; and
• Mobile money reduces household transaction costs and seems to improve their ability to share risk.

Today, globally and in Africa, we see examples of virtual banks that clients can access through mobile phones at lower cost, something unthinkable 20 years ago. Technology itself is addressing the age-old problem of account inactivity; look at Juntos Global, which uses SMS to engage with clients digitally and can increase account activity by 33 percent and average balance sizes by 50 percent.

Would we have envisioned this 20 years ago? Almost certainly not. That’s why I am as optimistic for the next 20 years as I am proud of all that we’ve achieved over the last two decades.