The Five Most Dramatic Changes in 20 Years of Financial Inclusion

Since 20 years ago, when CGAP was born, there have been dramatic changes in the progress of financial inclusion. Here are five changes in my view.

1. Diversification: While financial products required by the poor were considered to be only microcredit 20 years ago, these have now diversified into savings, payments, insurance, remittances, lease as well as credit. In parallel, financial service providers (FSPs) to the poor have expanded from credit-only microfinance institutions (MFIs) to deposit-taking MFIs, commercial banks, cooperatives, telecom companies, payment companies, insurance companies, and others. The legal forms of FSPs and regulatory frameworks have also been diversified. Financial infrastructure service providers and investors are also part of the stakeholders now.

2. Digitization: Due to technological innovation, the digitization of service delivery has proceeded rapidly in many parts of the world although its pace differs by country. One of the major challenges of delivering micro services to poor clients in remote or sparsely populated areas in a convenient and cost effective manner is now being addressed by this. Digitization also affects product nature. Technology may take all the stakeholders into uncharted waters, and, hence, the importance of consumer protection is paramount.

3. More evidence and data available: 20 years ago, numerous “nice” personal stories provided the motivation for delivering small-value credit to the poor, especially poor women, many of whom were engaged in small trading businesses. Credit risks were addressed by relying on social capital in localities. Since then, rigorous RCTs have been conducted on credit, savings, payments, insurance and other services to households and micro businesses, and their results are mixed, modest and nuanced. Financial services are used for diversified purposes including consumption leveling, coping with emergencies, preparing for future risks, investing in creating future assets, livelihood improvement, and increasing welfare. More data and standards on expanding financial access and on FSPs’ financial and social performance are now available, but how to measure the quality of usage, value to clients and behavioral impacts increasingly matters.

4. No one should be left behind: The extreme poor were not regarded as the beneficiaries of microcredit services in the past, but thanks to the Graduation model piloted by CGAP and its linkage with social protection policy, they can now be the clients of various microfinance services. No one from poor farmers to the most marginalized, vulnerable or disabled, whether male or female, young or elderly, should be excluded from reliable, affordable, convenient and appropriate financial services. This is now considered to be one of the basic human rights. Clients, not beneficiaries, ought to be at the center. There may be a long way to go, but this must be achievable wherever they live.

5. Part of the global development: Financial inclusion, different from standalone microcredit initiatives in the past, is now an integral part of national and global development agendas as well as the global financial architecture. It is a means, not an end, to other developmental services such as electricity and water supply, to the livelihood betterment of the poor in anywhere in the world, to inclusive growth and equality, to financial, economic and social stability, and to sustainable development for all.

All of these dramatic changes have been caused by innovations in private financial markets with enabling public engagement. Faced with challenges toward full financial inclusion for all and with enormous, pressing developmental issues such as climate change, income and gender disparities, and conflicts and humanitarian crises, we have to spur further innovations and behavioral changes of stakeholders in markets so that market systems better work for the poor and vulnerable. Abundant liquidity is available in most of the financial markets and can be diverted to the poor’s productive activities and increasing consumption by proper public policies. In the future, ensuring responsible market development will continue to be the role of international public goods at the frontier like CGAP.