A woman walks between reeds to the water's edge Photo credit: Santosh Rajgarhia Purulia India/2017 CGAP Photo Contest

The Future of Financial Inclusion

Financial inclusion 2.0. – creating more inclusive, resilient, and green futures

In recent years, the world has faced many unprecedented shocks and stresses that have exacerbated existing development challenges—all of which have disproportionate impacts on the most vulnerable, especially women and girls. People living in poverty constantly juggle an evolving set of risks and crises in their daily lives. However, the additional challenges posed by the COVID-19 pandemic, inflation, climate change, conflicts, and other shocks have intensified poverty and inequality. The World Bank now projects that 7% of the world’s population—more than half a billion people—will remain in extreme poverty in 2030 (Figure 1). The World Economic Forum predicts that the timeline to close the global gender gap1 has increased by a full generation (from 99.5 years to 135.6 years).

figure 1

Meanwhile, record-high debt levels constrain the ability of countries to respond to these challenges, with the total external debt of low-income countries growing from 17% of gross national income in 2011 to 48.5% in 2021 (Figure 2).

Figure 2: government debt (percentage of gdp)


Against the backdrop of such a challenging global context, financial inclusion is an essential foundation for building a more inclusive, resilient, and green world. Without access to finance, individuals often cannot safely save to invest in the education of their children or in other life-enhancing strategies; micro and small entrepreneurs struggle to invest in their businesses to make them grow and increase the income of their households; unemployed youth struggle to build futures as self-employed entrepreneurs; and women cannot exercise full agency and decision-making. Without access to finance, low-income households and Micro and Small Enterprises (MSEs) struggle to build financial buffers or buy protection against the shocks they may face throughout their lives. And, without access to finance, they often cannot participate in a green transition, adapt to climate change autonomously, or take advantage of green technologies. 

However, for financial inclusion to deliver on its promise and generate a more inclusive, resilient, and green future, we need to fundamentally redefine and reimagine it.  Financial inclusion 2.0 cannot be focused just on the mechanics that create access to financial accounts. Financial inclusion 2.0 must be about maximizing the impact of inclusive finance for low-income and vulnerable individuals, households, and MSEs by developing financial solutions that will effectively build a more inclusive, resilient, and green future for them. Concretely, this means going beyond maximizing the breadth of financial inclusion (i.e., the number of people and MSEs who have access to and use a financial account to make or receive digital payments), and even beyond increasing the depth of financial inclusion (i.e., the extent to which people and MSEs have access to an expanded suite of responsible financial products and services e.g., savings, credit, insurance). Instead, we need to focus on maximizing the utility of financial inclusion, that is, the benefits and outcomes that financial inclusion creates for its beneficiaries. 

Financial inclusion 2.0 must be about maximizing the impact of inclusive finance for low-income and vulnerable individuals, households, and MSEs by developing financial solutions that will effectively build a more inclusive, resilient, and green future for them.

Adaptation to climate change provides a compelling example of why that renewed focus on outcomes matters. Climate change and its associated risks and shocks affect the welfare and livelihoods of vulnerable individuals and households, especially women, to a disproportionate extent. 2 While people living in poverty disproportionately suffer from climate impacts, they have the smallest margins and the least access to resilience strategies that can help them avoid, absorb, and adapt to these shocks. Of the world’s 1.4 billion unbanked adults, a majority (over 1 billion – i.e., four out of five) live in the most climate-vulnerable countries. Further, three out of four adults in these countries are either unbanked or not financially resilient as compared to one out of three in less climate-vulnerable countries.3

Financial services can play a critical role in helping vulnerable populations navigate the risks and shocks associated with climate change.  CGAP will soon publish analysis showing the different ways financial inclusion is a vital tool for enabling autonomous adaptation, financial stability, and a just transition to sustainable economies. Having access to a digital financial account is indeed the first line of defense for most low-income people after a shock, as it allows them to receive a remittance transfer from friends and family or a safety net transfer from their government. A digital account enhances the effectiveness of such transfers, including their speed, accuracy, accessibility, and cost. There is no doubt that having access to a financial account (financial inclusion breadth) matters. 

However, to truly build resilience and adapt to climate change, it is not enough. Access to a broader range of financial products (financial inclusion depth) is also useful - for instance, access to microcredit might enable the purchase of climate-resistant seeds, an irrigation system, or a Pay-As-You-Go (PAYGo) off-grid solar system, which can improve resilience and productivity, as well as health and education outcomes. Savings might enable the creation of small financial buffers which also helps to build resilience. 

But even that is not enough because most existing financial products do not respond to the climate adaptation needs of low-income people. CGAP’s research shows indeed that there is a mismatch between the supply and demand of financial products and services for climate change  and that there is still much to be explored regarding products that incorporate climate resilience and adaptation into their design. For example, traditional financial services would not be available for low-income households to invest in strengthening the climate resilience of their house or to build a flood wall around their fields. Microcredit, as it is offered today, is indeed not suitable for investments like these, which do not generate a cash flow to base a credit analysis on. Returns from such investments result from a shock not happening – i.e., a probabilistic counterfactual – rather than the generation of a cash flow. This makes them difficult to assess by financial institutions. In addition, such counterfactuals are difficult to quantify for the short time horizon that microcredit is typically provided to customers because they may only occur over a longer time horizon. 

This example demonstrates the importance of continuing to build the breadth and depth of financial inclusion – i.e., greater access to accounts and other financial services - but that this will not be enough to build more inclusive, resilient, and green futures.  We need to go beyond breadth and depth and intentionally define the outcomes (utility) we aim to achieve through financial inclusion so that we can design financial inclusion interventions and inclusive financial products that achieve these outcomes. We already have examples of how financial inclusion can support progress towards 13 of the 17 SDGs. This is encouraging, but the next step is to be very intentional across a range of development areas and to foster greater collaborations between those with expertise on these agendas and the financial inclusion sector.  Among others, it will be essential to include financial inclusion as part of climate change programs.

So, where do we stand compared to this vision?

Fast progress in access to financial accounts globally masks huge financial inclusion gaps

The world has made a lot of progress in access and usage of financial services (breadth of financial inclusion) over the last decade: 76% of adults in the world today have access to an account, a stunning 50% increase compared to 2011 (figure 3).4  

What’s more, we are likely to see continued progress in access, as the main enablers for that to happen are well known and are increasingly being used to establish an effective Digital Public Ecosystem (DPE) – i.e., a set of effective public infrastructure and policies that enable the growth of responsible inclusive mobile money or other digital financial services. These enablers include connectivity and access to phones, an effective fast payment system, IDs for all, digitization of payments (for instance of social safety net transfers), enabling financial sector policies (sandboxes, data sharing frameworks, financial agents, etc.), consumer protection to create trust in digital financial services, and financial and digital literacy to bring people along. 

However, while access to accounts has increased significantly globally, there remain significant regional differences: access remains lower in Central America, most of Africa, the Middle East, and in the poorest countries in South and East Asia. In fact, in 45 developing countries, access remains below 50%, and in another 23 countries, access is above 50%, but usage is below 50%. In fragile states, access is even lower, with only 37% of adults having access to an account. 

Figure 3: % of adults with access to an account

In addition, certain segments of the world's population remain particularly excluded from financial services. Women lag behind men and the gender gap in financial access has increased in all regions of the world, except in the Middle East and North Africa region (arguably because there it started from a lower level) and in Europe and Central Asia (Figure 4). In 41 countries, there is still a 10% gap between men and women in access to finance. In countries affected by fragility, conflict, or violence (FCVs), women are 37% less likely than men to have access to an account. Similarly, the gap in access to finance between rural and urban areas is significant in many countries (Figure 5). 

Progress has been much more limited in terms of the depth of financial inclusion. As measured in 2021, only 25% of adults in Lower- and Middle-Income Countries (LMICs) saved money at a financial institution or using a mobile money account – compared with 58% in High-Income Countries (HICs). Only 23% of this same population borrowed money from a financial institution or used a mobile account – compared with 56% in HICs.

Financial inclusion at a crossroads: 3 global priorities for delivering on financial inclusion’s promise

We are at a crossroads: behind us, the massive progress achieved over the last decades in promoting greater access to financial accounts is a reason for celebration. But ahead of us lies a world full of challenges and risks that financial inclusion can play a substantial role in helping to address. The roads to travel to unleash such potential require us to address three key priorities:

  1. Eliminating country-level gaps in financial access by putting in place an effective Digital Public Ecosystem (DPE),
  2. Bridging the gender and other excluded segments’ gaps in financial access through an intentional system-level approach, and
  3. Unleashing financial inclusion to contribute to the goals of building a more inclusive, more resilient, and greener world by i) Focusing squarely on the development impact of financial inclusion, ii) Leveraging the power of data, iii) Channeling funding to scale impactful financial innovations, and iv) Managing emerging and accelerating risks. 

Priority #1: Eliminating country-level gaps in financial access by putting in place an effective Digital Public Ecosystem (DPE)

As mentioned above, in 70 countries of the world – nearly 40% of all countries – the percentage of adults who can access and use a financial account is still below 50%.  In many of these countries, some of the enablers of financial inclusion are not yet in place. We need to invest in filling in these gaps. For example, in Africa, Global Findex data show that for people who are financially excluded, not having access to a phone or to a financial agent are among the main obstacles to using digital financial services (Figure 6). Addressing the gap in these two enablers would already go a long way for more than 100 million people in these countries in terms of facilitating their access to financial accounts. In addition, it would contribute to decreasing the gender gap and the rural-urban gap in financial access because rural populations are 54% less likely to own a phone, and the gender gap in mobile ownership is 15%. 

Figure 6: Financially excluded adult populations in select countries, along reasons that those without a mobile money account provided for not having a mm account

In other countries across the world, trust in financial institutions and not having access to nearby financial institutions are also issues that prevent nearly 450 million people from accessing financial services according to the Global Findex (Figure 7). There, better consumer protection, as well as financial and digital literacy, and better agent networks might help build both trust in, and access to, financial services. 

Figure 7: Financially excluded adult populations in select countries, along reasons that those without an a financial account provided for not having an account

Putting in place the enablers that we already know are important may not be sufficient to achieve financial inclusion in all countries, but they are essential on that journey. Without them, financial inclusion cannot be achieved. It is therefore a first priority that governments, private stakeholders, and development partners redouble their efforts to put in place or close gaps in well-known financial inclusion enablers and establish effective Digital Public Ecosystems (DPE) – as described earlier. 

Priority #2: Bridging the gender gap and other segments’ gaps through an intentional system-level approach

Many of the enablers that help promote financial inclusion across the population in general also improve financial inclusion for women. For example, when women have access to smartphones, when government payments to women are digitalized, when women have IDs in their own names, when regulations enable the use of simplified know-your-customer (KYC) procedures, and when agent networks reach areas where women work (especially with female agents), we see progress on women’s financial inclusion.

Many of the enablers that help promote financial inclusion across the population in general also improve financial inclusion for women.

But filling such gaps in key enablers will not be enough to close the gender gap in financial inclusion because there are in many countries specific obstacles to serving women with financial services, mostly rooted in gendered social norms. Because such obstacles are deeply rooted, a systems-level change is needed, i.e., an intentional change at the country level – by all participants in the financial ecosystem – to address women's financial inclusion gaps. Key financial sector leaders in the country would need to lead and champion such a reform effort. Financial services providers would need to intentionally serve women customers by considering their specific characteristics such as their distinct digital and financial literacy levels, livelihoods, formal and informal income-generating opportunities, mobility, etc. Those providers who have already done so have realized the strong business case that serving women represents. Regulators and policymakers would also need to intentionally remove any implicit biases against women in laws and regulations such as, for instance, demanding real estate collateral where women cannot own land. Furthermore, they would need to help produce and analyze gender-disaggregated data on women's use of financial services to serve as guideposts for the sector, and they need to implement strategies to empower women economically as when women have access to a job or another stable source of income, the financial inclusion gender gap decreases significantly.  

Going forward, an additional challenge all stakeholders will need to address is that of avoiding gender algorithm biases in a rapidly digitalizing world where Artificial Intelligence (AI) is going to play a fundamental role in the provision of financial services and will therefore influence whether those services are inclusive or not.

Priority #3: Unleashing financial inclusion to contribute to the goals of building a more inclusive, more resilient, and greener world

Efforts to bridge gaps in access to finance, including for women and other traditionally excluded segments, will establish the foundations on which to unleash the promise that financial inclusion can be a powerful enabler of a more inclusive, resilient, and green world.  Unleashing that potential will require the sector to do four things beyond promoting universal access to and use of accounts: i) Focus squarely on the development impact of financial inclusion, ii) Leverage the power of data, iii) Channel funding to scale impactful financial innovations, and iv) Manage emerging and accelerating risks. 

Focus squarely on the development impact of financial inclusion 

The financial inclusion industry, and with it, inclusive finance providers and investors, have so far anchored the sector’s narrative, their work, and their results indicators on creating access to, and usage of, financial services. These efforts culminated in 2013, under the World Bank’s leadership, with the setting of a Universal Financial Access goal for 2020. Such efforts served the world well and contributed to the significant progress in financial inclusion that took place over the last decade.

However, it is now a decade later and a continued focus on just increasing access to financial accounts is holding the industry back. It is, arguably, preventing us from collectively maximizing the impact that financial inclusion can and should have. As described above, financial services can play a key role in the autonomous climate adaptation of low-income households, but a focus on creating access to digital accounts, or even to generic inclusive financial services, is not sufficient to enable such an outcome.  Market failures currently prevent financial services providers from developing dedicated climate adaptation services for low-income households and MSEs.

Therefore, we posit that the biggest change the financial inclusion industry and inclusive finance providers need to make going forward is to put the utility, i.e., the development outcomes of financial inclusion at the heart of everything we do. This will include building financial health but must also stretch far beyond financial health and make deep inroads into development outcomes. 

Financial health has been defined by a working group convened by the UN Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA) in 2021 as “the extent to which a person or family can smoothly manage their current financial obligations and have confidence in their financial future.”5 Evidence shows that financial health is influenced by many factors, including but not limited to financial inclusion. But is it an end in itself? While financial health represents important outcomes, it should not be seen as the final outcome of our work. We need clearer thinking and more evidence about the pathways from financial health to other development outcomes – for individuals, households, enterprises, and whole societies and economies – including toward building more inclusive, more resilient, and greener futures.

We need clearer thinking and more evidence about the pathways from financial health to other development outcomes – for individuals, households, enterprises, and whole societies and economies.

Clearly articulating these higher-level outcomes as a community will help guide our collective work. It will, for instance, incentivize us to address the market failures that currently prevent financial services providers from developing dedicated climate adaptation services for low-income households and MSEs.
Simultaneously, we will need to define new outcome-oriented metrics to serve as guideposts for financial inclusion and inclusive finance providers and investors. With unwavering attention and systematic focus on the outcomes we want to contribute to through financial inclusion, we can collectively design and implement impactful financial inclusion interventions that are built on robust evidence of what works, where, for whom, and under what circumstances.

Leverage the power of data

New technologies, data capabilities, and data trails are creating a significant opportunity to maximize the utility of financial inclusion for people living in poverty  and to build a more inclusive, more resilient, and greener world. Indeed, 73% of low-income individuals are digitally included, i.e., they at least have a phone and therefore generate data trails. This number continues to grow. This matters because these data trails are being leveraged by financial institutions to provide these people with financial services. 

Financial institutions can for instance conduct KYC client due diligence on the basis of alternative data to get unbanked clients into the financial sector. Financial institutions can further conduct credit scoring analysis based on alternative data to provide new customers with credit. CGAP’s work confirms that it is possible to develop credit scoring models with alternative data, such as e-commerce data, with the same predictability power as traditional credit scoring models based on credit history data.  This could potentially make a huge difference for financial inclusion as 33% of the digitally included poor are financially excluded*, which means that if we were to leverage the data trends of those that are included digitally but not financially, we could reduce the financial exclusion gap by 40-50%, from 1.4 billion people who are currently financially excluded to around 800 million. 

"If we were to leverage the data trends of those that are included digitally but not financially, we could reduce the financial exclusion gap by 40-50%."

Sophie Sirtaine, CGAP CEO

The progress could be even larger in terms of the depth of financial inclusion because only 32% of digitally included low-income people make digital transfers, only 25% save, and only 12% borrow. Therefore, the potential to leverage their data to provide them with these financial services and reduce financial exclusion is even larger. This also represents an untapped business opportunity for financial services providers as evidence suggests there are commercially viable business cases.

This opportunity to leverage data is being made possible because many governments are putting in place the required Digital Public Ecosystem (DPE). As part of such an ecosystem, open finance is particularly promising as it allows (with the customer’s consent) for the data that is generated by poor customers to be shared among financial market institutions , while open APIs enable third-party providers such as FinTechs to develop data-driven products and services. This in turn is reshaping financial markets through a modularization of the financial sector supply chain where different types of actors play different roles and together offer better and cheaper products to more clients. For example, as mentioned above, FinTechs can now develop customer due diligence algorithms and credit scoring models based on alternative data and then offer these services either as fully-fledged digital banks or in partnerships with existing banks on the bank’s balance sheets and through their customer interfaces. By fostering data-driven innovation and greater competition in financial markets, the combination of open finance and inter-operable payment systems has already become a key enabler of greater financial inclusion in countries like Brazil.

Developments related to Artificial Intelligence (AI) will further push the frontier of access to financial services.  Voice and facial recognition algorithms are enabling people with limited literacy, as well as blind and deaf people, to access financial services. Natural Language Processes (NLP)-based methodologies are already enabling the development of highly accurate credit scoring algorithms, as well as that of Suptech solutions, such as social media monitoring tools, that will contribute to increasing customer confidence in digital financial services. 

These exciting data-driven innovations have immense potential. They provide us the opportunity to bring more people into the financial system and to offer them more impactful financial products – all largely driven by the private sector with limited drain on public resources. But, this opportunity will only be realized if we proactively foster such innovation through suitable enabling policy environments and business models. 

Channel funding to scale impactful financial innovations

If we are to fill the enormous financial inclusion gap and unleash the true potential of financial inclusion for contributing to development outcomes, then the most promising data-driven innovations will need to be scaled and replicated.  This will require significant funding.

CGAP’s funder survey reveals that global funding for inclusive finance has been growing steadily over the last decade to reach about $68 billion in 2021. Development Finance Institutions (DFI) have been providing the lion’s share of such funding while private funding, especially from private foundations and impact and other investors, has been growing the fastest. This trend is promising for delivering inclusive financial innovation at scale. 

But for such funding to maximize the impact and truly capture the potential of financial inclusion, it would require all those who are funding or investing in inclusive finance innovations – including the DFIs and private impact and other investors – to embrace a fully outcome-oriented approach. This would need to include adopting fully outcome-oriented Investment measurement and Monitoring (IMM) frameworks, as described above, and then using them as a compass to invest in the most promising innovations and where impact can be strongest. Doing so may provide an incentive to channel more funding to Africa for instance, as Africa still absorbs less than 1% of global venture funding.6

Managing emerging and accelerating risks

The rapid development of digital innovations certainly offers significant hope for impactful financial inclusion – but it also comes with a lot of risk, which is already translating into a negative impact on consumers. CGAP research in Cote d’Ivoire highlights that 88% of digital financial services users experienced first-hand at least one risk in 2022  – whether of inadequate information, ID theft, mobile app fraud, or other. About 40% of these customers said that they lost money as a result. 

These alarming numbers are not a reason to shy away from digital financial services because the benefits of leveraging the potential are so much greater, but they are a real cause for concern and require active management from all stakeholders in the digital financial ecosystem. With collaboration, adequate competencies, and a customer focus, stakeholders can establish a Responsible Digital Finance Ecosystem (RDFE) that will ensure the positive effect of digital innovations for financial inclusion is not outweighed by risks. 

In addition, rapid digital disruptions are challenging regulators and policymakers. They are raising important questions regarding the regulation of new players that are outside their traditional regulatory perimeter; about collaboration with other regulators, including across borders; and about how to balance various policy objectives, including promoting competition and innovation on the one hand and ensuring protection and stability on the other. These questions will require regulatory experimentation and guidance by national and international institutions and standard setters.

But the biggest risk of all is the digital divide. If we do not close the digital divide, the positive trends in digital development will actually reinforce exclusion instead of promoting more inclusion, because all the promising developments we are seeing are built on digital trails.  The current digital divide is particularly large between women and men as well as between urban and rural areas. If we do not address it, these gaps will become wider. Closing the digital divide globally might thus be the most important prerequisite for increasing impactful financial inclusion.

A new wave of impactful financial inclusion is building – will we maximize it? 

The crossroad we are at offers an opportunity to foster a second big wave of progress in financial inclusion, this time not just in breadth but also in depth and utility. To embark on that road, public-private partnerships will be needed. The private sector can leverage the power of data further to innovate and develop new financial solutions, services, products, and delivery mechanisms that can enhance the breadth, depth, and utility of financial inclusion. It can also fund the scaling of innovations that promise to be successful. However, to enable these things to happen, the public sector will need to put in place the key enablers and create effective Digital Public Ecosystems (DPEs), comprised of Digital Public Infrastructure, enabling regulation and open finance frameworks, as well as responsible digital ecosystems. Public actors, especially DFIs, will also need to help de-risk private capital to drive its focus on impactful innovations, even when risks are still high. They will also have to guide the sector towards an intentional focus on excluded segments. Funders and sector support organizations will have a vital role to play in fostering innovations, the development of effective DPEs, the scaling of solutions, and the elimination of the digital divide.  

Indeed, we have come to a crossroads. We know this agenda is challenging and very little comes easily. But the collective rewards are worth aiming for: greater financial inclusion; progress on broader development outcomes; and improved opportunities for poor, vulnerable, and underserved people. At CGAP, we are optimistic such an ambitious agenda can be achieved through a collective effort – both through partnerships and collaboration, and by each actor in financial ecosystems taking action on those aspects appropriate to them. We are convinced that by collectively advancing such an agenda, financial inclusion’s potential will be unleashed towards greener, more resilient, and more inclusive futures.

*Correction: a previous version incorrectly stated that 33% of the digitally included poor are currently financially included. That is the percentage excluded.

1 As measured by economic participation and opportunity, educational attainment, health and survival, and political empowerment.

2 Stephane Hallegatte, Adrien Vogt-Schilb, Mook Bangalore, and Julie Rozenberg. 2017. Unbreakable: Building the Resilience of the Poor in the Face of Natural Disasters, Climate Change, and Development. Washington, D.C.: World Bank.

3 Analysis by the Office of the UNSGSA, based on the Global Findex and the Notre Dame Global Adaptation Initiative Index. Climate-vulnerable countries are defined as those in the top 50 percent of the ND-GAIN vulnerability index.

4 See Global Findex

https://www.unsgsa.org/sites/default/files/resources-files/2021-09/UNSGSA%20Financial-health-introduction-for-policymakers.pdf. Relevant factors that affect financial health are: (i) Day to day management: smooth short-term finances to meet financial obligations and consumption needs. (ii) Resilience: capacity to absorb and recover from financial shocks. (iii) Goals: on track to reach future goals, and (iv) Confidence: feeling secure and in control of finances.

6 See African Private Capital Association (AVCA). 2023. “2022 African Private Capital Activity Report.” AVCA. https://www.avca.africa.

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