The future for poor people and financial inclusion is difficult to predict. In what ways will financial services influence inequality and economic participation for poor people by 2025?
CGAP brought together more than 100 thought leaders, innovators, development actors, and academics to ponder this question. The scenario thinking exercise uncovered several insights that point to four major forces that are likely to fundamentally shape poor people’s lives and the financial inclusion industry itself:
- Digital Technologies. Will the spread of digital technologies and the digitization of information flows benefit poor people?
- Globalization. Will the globalization of capital, information, and ideas change the way poor people engage in society?
- Migration. Will poor people continue to move domestically and internationally?
- Nature of Work. Will the changing world of work affect poor people?
The pace and magnitude of change coming in the next decade can have a profound impact on the lives of poor people. By allowing ourselves to explore plausible futures, several implications for the financial industry have emerged:
- Financial services will continue to be central as an enabler to improve poor people’s lives.
- Diversification of providers will change the financial services ecosystem.
- Broad use of data will enable transformative solutions for poor people, but will also create risks.
- The risk of growing the digital divide is significant.
- Role of government will remain critical.
This vision of the future is intended to help us be more prepared for any future scenario, and hopefully it can also help us shape financial inclusion for the better.
Today, governments, development organizations, and private-sector players worldwide recognize the importance of financial services for poor people. As a result, more people are gaining access to financial services. However, relatively few people in developing countries use these services. This may reflect the perception that financial services on offer are of limited value for customers. Low use leads to lower gains for providers, thus putting the sustainability of financial inclusion solutions into question. Important challenges remain for our industry and financial inclusion is only a means to an end.
Global development trends indicate that more people will be living in urban areas with a youthful population in the South and an aging population in the North. The number of people living in extreme poverty is likely to continue to decline as incomes continue to rise in many parts of the world. Globally, the well-being of individuals seems to be improving. Yet, inequality has become a new challenge. A majority of poor people work in the agricultural and informal sectors with often vulnerable employments and at the same time job markets are becoming increasingly polarized leaving the poor with fewer opportunities to move up.
There is no crystal ball that will tell us what the future holds, but it is the responsibility of donors and other organizations working to advance financial inclusion to think through plausible, divergent futures to anticipate opportunities to ensure financial services better serve the needs of poor people in the coming years.