Financial Inclusion for an Inclusive, Greener, More Resilient World

This post is also available in French on the FinDev Gateway.

As I take the reins of CGAP today, I’d like to start a conversation on strategic priorities for CGAP over the next few years. In this blog, I’ll outline what I see as the main challenges and opportunities related to financial inclusion in the world. In follow-up blogs, I’ll discuss some of the avenues available—and the reforms needed—to address these challenges and the role CGAP can play.

My hope is that these posts will spark conversations that help define CGAP’s strategy for the next five years. Please share your thoughts in the comments below.

I first encountered the pressing need for more inclusive financial services in 2008, when I visited clients of one of India’s microfinance institutions. I realized during that visit how much of a difference access to very small loans had made for poor households in India.

A woman signs microfinance loan documents with SKS in 2008.
A woman signs microfinance loan documents in 2008. Photo: Ewa Sierzynska

Shortly afterward, I witnessed the power of financial inclusion to reduce poverty in other regions. Amid the global financial crisis, I saw first-hand the relief that credit guarantees brought to hard-hit small businesses in the Caribbean. I also saw how crop insurance provided an essential cushion against the impact of climate events on household income. These and many other experiences left me with no doubt: financial inclusion is an essential ingredient in sustained global development.

In a world battered by devastating challenges, including COVID-19, I believe the biggest priority for the global development community today is to help rebuild a world that is inclusive, greener, and more resilient. Financial inclusion is an indispensable part of the solution.

Financial inclusion contributes to a world that is inclusive, as it provides the means for the poor to empower themselves, leverage opportunities and invest in their future. Financial inclusion is particularly important for empowering women. For example, borrowing is often the key to entering the workforce and playing a role outside the house. Evidence also shows that when money is earned or managed by women, it is better used for the household, and children benefit more.

Financial inclusion also contributes to a world that is more resilient because it provides the poor and vulnerable with means to protect themselves against shocks. And it contributes to a world that is greener, as it enables the poor to mitigate, transition and adapt to the impacts of climate change.

Thus, financial inclusion must be part of the global response to COVID-19 and to many of the other key challenges of our times. If the pandemic has taught us anything, it is that none of us can reliably be safe unless all of us are safe. 

However, to significantly improve financial inclusion in our current context, we’ll need to do four things:

1. Close the financial inclusion gaps—including the gender gap

Despite all the progress made in expanding access to finance over the past decade, in particular via the rapid development of digital financial services (DFS), an estimated 1.7 billion adults worldwide (roughly one out of every three adults) still don’t have a basic transaction account. In the least developed countries (LDCs), 65% of adults have no basic transaction account. Roughly 56% of all unbanked adults are women, and half come from the poorest 40 percent of households. At the regional level, the Middle East, South Asia and Africa remain far behind. Within each continent, low-income countries typically stand behind middle- and high-income ones.

Countries affected by fragility, conflict and violence are even further behind: formal account ownership is twice as high in non-fragile countries compared to fragile countries (69 percent vs. 31 percent, respectively). Among population groups, women lag men by about 9 percentage points in access to bank accounts. People who live in rural areas, those who work in the informal sector and agriculture, youth, migrants and refugees are also more financially excluded.

2. Expand access to financial services that actually help people improve their lives

Poor people’s access to financial services is often limited to a basic (and increasingly digital) transaction account. This is already a huge step forward: these accounts enable cheaper and more efficient remittances and social payments. But it’s not enough. Today, CGAP and others are largely focused not only on expanding account access but also on ensuring that financial tools actually enable poor people to improve their lives. To seize opportunities for their future and to build resilience, the poor also need access to credit, savings and insurance that are appropriate for their needs.

Although digital financial services offer tremendous potential here too, huge gaps remain across regions, sectors, and population groups. For instance, only about 20 percent of adults globally have access to credit and only 8 percent in fragile countries. Similarly, only 20 percent of adults in the Least Developed Countries (LDCs) save through a formal financial institution.

3. Understand better the interplay between financial inclusion and green finance

Low-income communities are hit the hardest by climate-related disasters and environmental impacts resulting from climate change. They will need a variety of financial services to mitigate, transition and adapt. Among others, these might include savings and remittance services (e.g., to smooth consumption during periods of drought or low crop yields), micro-loans (e.g., to buy greener assets, fund reconversions and invest in climate-smart agriculture) and insurance (e.g., to protect against yield fluctuations resulting from climate change). However, the necessary financial products are not yet readily available to the poor. Business models will need to adjust—and that will require data, resources and innovation. Global efforts to green the financial sector could help the poor in this respect by providing an impetus for more financing toward green financial solutions. But these efforts could further exclude the poor if, for instance, they focus mostly on large-scale climate projects. Policy and regulatory frameworks will also need to be conducive.

4. Support the safe development of digital financial services

These services offer a unique opportunity to accelerate financial inclusion. There are over 850 million registered mobile money accounts across 90 countries, with US$1.3 billion transacted per day. Sub-Saharan Africa, where 21 percent of adults have a mobile money account, is the global leader in mobile money. But obstacles and risks need to be addressed. Connectivity gaps remain large as more than half of the developing world remains digitally unconnected or unable to reap the benefits of the ongoing digital transformation. Legal, regulatory, institutional, operational, data-limitation and funding issues can impede the growth of these services and their ability to benefit the poor. Digital financial services also create risks, including data-related risks (cybersecurity, data privacy, data gaps), consumer-related risks (over-indebtedness, mobile app fraud, SIM swap fraud, social media scams), financial intermediary-related risks (liquidity, solvency, competition), and issues related to money laundering and financing of terrorism. Systemic risks are possible when digital-services intermediaries become large and where there are various forms of interconnectedness in the financial system.

A global agenda

Carrying out these four strategic priorities will require further research and evidence. Governments, development partners and private actors all need to know what works and needs to be scaled up versus what does not work and requires course correction. Public-private dialogue is critical to ensure well-designed policies and regulatory frameworks foster private sector solutions where feasible.

Aspiring to a greener, resilient, and more inclusive world offers a way forward to achieve lasting economic progress that is shared across populations, provides a robust recovery, and restores momentum on the Sustainable Development Goals  (SDGs). It aligns fully with the vision we have at CGAP of a world where poor people, especially women, are empowered to seize opportunities for a better life and to build resilience through financial services.

CGAP’s unique value proposition comes into play in addressing the critical need for evidence, models, dialogue and solutions—especially in informing the policy and regulatory agenda at global and national levels, identifying and scaling successful implementation models, and pushing the frontier on innovation.


Reading Deck

While digital financial services have delivered substantial financial inclusion benefits and unlocked life-changing opportunities for consumers, CGAP’s latest research finds that they have exacerbated existing consumer risks and continue to introduce new and ever-evolving risks—some outgrowing consumer adoption rates.

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