Do We Need a Financial Inclusion Paradigm Shift?

A market systems approach to financial inclusion, as advocated in CGAP’s new Guidelines for Funders, is quite timely for my organization, Japan International Cooperation Agency (JICA). In the past, JICA’s main contribution toward promoting financial inclusion in its client countries has been through setting up credit-lines at APEXs, creating revolving funds under technical assistance programs, or helping with the capacity building efforts of a stakeholder. This practice was credit-supply-driven or piecemeal, and only resulted in filling financial or technical gaps temporarily. A market systems approach such as the one advocated in the latest CGAP report is more holistic and sustainable. It also utilizes cost-effective interventions and has greater impact spurring systemic changes aiming at inclusive, responsible and local financial markets.

A fast-moving market at night.
A fast-moving market at night. Photo by Bir Azam.

A shift in both the mindset of JICA’s staff as well as its client government officials is required. It is a big challenge. Whether specific to financial services or not, a development aid agency like JICA is more accustomed to the conventional practice of transferring financial and technical resources to client countries. When clients were suffering from a lack of resources, this practice was justifiable. However, resource gaps between rich and poorer countries are fast narrowing, and the role of private markets, especially local markets, for developmental services, is increasingly important. This is why international and national public resources should be used selectively and efficiently for facilitating systemic changes in private market development, enabling service deliveries to continue in a wider scale as a business case. JICA has just begun adopting a new approach toward promoting inclusive financial services in Honduras, the Philippines, Egypt, Albania and India, although it will take several years to have tangible results with more developed markets. In Egypt, for example, JICA halted lending to the APEX agency and instead helped various stakeholders in the country to kick-start micro insurance markets.

The new Funder Guidelines recommend that funders and their programs should act as facilitators in a specific country. They are expected to be like “a country level CGAP.” The common quantitative measurement of outcomes and impacts of market changes is needed for many funders to adopt this approach, by crowding-in private market players, in a mutually enhancing manner among funders, instead of the conventional gap-filling approach. The traditional role of national APEXs of channeling funds from outside to domestic MFIs for credits and that of capacity building services by foreign experts under funders’ grant programs should be reoriented in line with the new Guidelines.

The implications of this new market systems approach to financial inclusion will be profound. If successful, our understanding about the expected roles of foreign assistance and of the national and international public sectors vis-à-vis private markets will be changed substantially. The fierce debate of the state versus the market since the beginning of the last century might reach a new conclusion. Avenues to socially and environmentally responsible and inclusive markets will become clearer. I am excited by these new Guidelines and look forward to seeing how their implementation could spur innovation and changes in the financial and other development sectors and, as a result, improve the world poor’s life.



These guidelines are intended to provide guidance for funders promoting financial inclusion or pro-poor financial services markets as part of their development mandate. The target audience includes multilateral and bilateral donors, development finance institutions, and foundations.
Sub-topics: Funder Guidance

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