Impact Evidence Confirms the Benefits of Financial Inclusion
Impact Evidence Confirms the Benefits of Financial Inclusion for the Poor
Washington, DC, 29 April 2014 – According to a new CGAP Focus Note, accumulated research confirms that access to and use of formal financial services benefit poor people.
The newest crop of some 20 randomized control trials (RCTs) indicates that formal financial services, such as microcredit, savings, insurance and mobile payments, can have a positive impact on a variety of microeconomic indicators, including self-employment business activities, household consumption, and well-being. “But benefits are not limited to the microeconomic level,” notes co-author Robert Cull, Lead Economist, Finance and Private Sector Development Research Group at the World Bank. “In addition to benefits to individuals, non-experimental evidence indicates that broader financial inclusion also coincides with greater local economic activity and decreased economic inequality at the macroeconomic level.”
Financial Inclusion and Development: Recent Impact Evidence specifically looks at studies addressing the impact of credit, savings, insurance and mobile payments products. Research around savings is the most consistently positive and suggests it can help households manage cash flow spikes and smooth consumption. Evidence around mobile money shows that the technology reduces households’ transaction costs and improves the ability to share risk through remittances. Several studies show that insurance helps poor households mitigate risks and manage shocks. Weather-based index insurance, for example, can have a strong positive impact on smallholder farmers because it encourages them to spend more on fertilizer and to shift to riskier cash crops.
While past evidence supporting the impact of microcredit on household welfare has been mixed, the demonstrated impact is much stronger than indicated by earlier studies and when applied to businesses.
“Access to credit can in fact benefit businesses,” notes co-author Nina Holle, financial sector development analyst at CGAP and report co-author. “New studies are showing that the availability of microcredit can result in higher income, better ability to cope with risk and even increased well-being,” said Holle.
With 2.5 billion unbanked people around the world, global and national-level policy makers have been embracing financial inclusion as an important development priority. By the end of 2013, more than 50 national policymaking and regulatory bodies had publicly committed to financial inclusion policies for their countries. Most recently in October 2013, the World Bank Group announced the global goal of universal access to basic transaction services as an important milestone toward full financial inclusion. “This accumulated body of evidence supports the convictions of policy makers who believe that financial inclusion is an important ingredient for social and economic progress,” says CGAP CEO Tilman Ehrbeck, lead author on the report. “A more nuanced picture is emerging that supports broad financial inclusion efforts. On the whole, access to formal financial services helps poor families in developing countries improve their lives.”
CGAP (the Consultative Group to Assist the Poor) is a global partnership of 34 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable approaches at scale. Housed at the World Bank, CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to the financial services the poor need to improve their lives.