World Bank research shows that an estimated 2 billion working-age adults globally—more than half of the total adult population—have no access to the types of formal financial services delivered by regulated financial institutions that wealthier people rely on. Instead they depend on informal mechanisms for saving and protecting themselves against risk. They buy livestock as a form of savings, they pawn jewelry, and they turn to the moneylender for credit. These mechanisms are risky and often expensive.
An increasing body of evidence shows that appropriate financial services can help improve household welfare and spur small enterprise activity. There is also macroeconomic evidence to show that economies with deeper financial intermediation tend to grow faster and reduce income inequality.
Learning from the microcredit revolution: The microcredit revolution showed that poor families in the informal economy are valuable clients, and that it is possible to serve them in large numbers sustainably. Today, the $70 billion microcredit industry that grew from these innovations with its estimated 200 million clients remains a great success of sustainable non-government and private sector growth catalyzed by highly-targeted public subsidies.
But over the past few decades we have also learned that poor households need access to the full range of financial services to generate income, build assets, smooth consumption, and manage risks—financial services that a more limited microcredit model cannot provide.
The global financial inclusion agenda recognizes these broader needs. It also recognizes the importance of financial literacy, building consumer financial capabilities, and for consumer protection regimes that take the conditions and constraints of poor families in the informal economy into account.
Leveraging new business models: To advance financial inclusion, there is a need for continued product and business model innovation so that more people can access a broader range of products at lower costs. Such innovation is already happening, for example leveraging digital business models. But ultimately no single type of provider will be able to overcome the very different product-specific business model challenges. What is needed instead is a variety of financial service providers that create an ecosystem that serves the poor profitably.
Creating the enabling environment: Responsible market development needs a regulatory environment that balances the needs of advancing access to finance with the stability of the financial system. Globally, policy makers are recognizing that financial exclusion is a risk to political stability that impedes economic advancement. The global financial Standard Setting Bodies are changing their guidance to respond to this need to facilitate financial inclusion. The G20, The United Nations, and The World Bank Group have all recognized financial inclusion as an important global development priority.
Between the better understanding of demand, the innovations in supply, and the recognition of the need for a protective and supportive enabling environment, we have the means to advance financial inclusion to improve the lives of the poor.