How Useful Is “Usage” in Measuring Financial Inclusion’s Impact?

Account dormancy is today’s bogeyman of financial inclusion. It seems like every other conference, webinar and blog post about financial inclusion now highlights or refers to low activity rates on financial accounts in low- and middle-income countries. It’s almost like dormancy gets as much or more attention than fraud, credit crises or predatory lending. Underlying this focus on usage is the intuitive assumption that greater usage means greater impact. A recent World Economic Forum paper captures this line of thinking: “Prosperity is not directly derived from the standalone ownership of bank accounts, but from their appropriate and consistent use.”

While usage does matter in many respects (above all for providers who rely on it for transaction fees and data trails), the current fixation may be misguided. From a customer’s perspective, account dormancy is not a problem to be fixed. If you are living on a very limited income, why would you opt for an expensive service that is not suited to your needs? When surveys ask people why they don’t own or use accounts, as FinAccess did in Kenya and Findex has done globally, they often say the same thing: I don’t have enough money. I can’t afford to. I don’t have regular income. It is not surprising that the highest inactivity rates among account holders can be found in some of the poorest countries (e.g., Congo, Afghanistan, Central African Republic) or countries with large populations living in poverty (e.g., India). Beyond the reality that low usage might just reflect the fact that poor people are indeed poor, I see three ways that the current focus on usage doesn’t quite get it right.

1. Usage of financial services doesn’t always equate to positive impact

It is often assumed that if customers are frequently using a financial product, it is because the product is adding value and having a positive impact on their lives. Surely, this is the case sometimes, but not always. Look at what happened with microcredit, where advocates claimed that clients’ repeated borrowing was prima facie evidence of positive impact. Or consider the fact that a FinAccess survey shows that most Kenyans feel that their financial status has deteriorated over the past five years, a time when mobile money use has grown by a third.

The truth is that high usage rates could indicate several things beyond whether a product has a positive impact on customers’ lives. In the context of digital financial services, online gaming, betting and e-commerce may all result in high usage rates, though these activities are not likely to significantly improve people’s welfare. High usage may also mean that customers lack meaningful choices. Take, for instance, situations in which companies require employees to receive their wages on prepaid cards or governments mandate that social protection payments are made electronically.

And why assume that usage will bring only benefits? Despite the common formulation that “customers won’t benefit from financial services unless they use them,” it is equally true that “customers won’t face harm from financial services unless they use them.” Just ask the 4.4 million mobile money users in Kenya who said they were victims of fraud last year.

Does this mean we shouldn’t pay attention to usage? No, usage is a valuable measure to track. But it does mean that usage should be just that: one of many metrics to measure financial inclusion, not an end-goal confused with positive impact. As Goodhart’s Law in economics reminds us: “When a measure becomes a target, it ceases to be a good measure.”

2. Usage may be causing us to lose sight of access

These days, the focus on usage has made talking about “access” passé in many financial inclusion circles. However, while everyone knows the limits of looking only at access as a measure of financial inclusion, access remains an important part of the financial inclusion equation. While wealthier countries may have “solved” the access issue and moved onto usage as the next frontier, many people who could benefit from financial services remain excluded. According to the most recent Findex data, only one in three adults in low-income countries has a transaction account.

This may be an unpopular position, but it is also worth asking whether access is more suitable as a goal than usage because it retains an element of choice or agency for low-income customers. One could argue that the goal of financial inclusion should not be to change behavior or get customers to use a specific range of services that outsiders think is better for them. Rather, it should be to expand the set of options available to poor people, so they are better positioned to achieve their goals, which may not involve formal financial services.

3. Usage isn’t the only pathway to impact

As Tim Ogden pointed out in his recent blog post, “Learning from Financial Inclusion Research: What Should We Expect?” a growing number of studies indicate that many gains from financial inclusion come about through spillover effects. In other words, the benefits do not always accrue directly to users of financial services but are distributed across local markets or communities, including among those who did not take up a financial service. An example of this can be found in a 2018 report by Emily Breza and Cynthia Kinnan, who show that despite modest impacts at the individual level, microfinance may have significant effects on consumption and wages at the district level (i.e., for nonborrowers). Thus, the notion that the benefits of financial inclusion come about only through direct use, intuitive as it may be, is not true.

How should we treat financial account usage and dormancy?

So where does this leave us? We in the financial inclusion community must approach usage with the nuance and sensitivity it requires. CGAP and others working in financial inclusion have some compelling ideas about new ways to think about and measure usage that try to get at the links between usage, value and impact. We must continue to address usage from a multidimensional perspective, recognizing that it is one data point among many and should not serve as the ultimate objective for financial inclusion. Quality, fair treatment and value-for-money are critical prerequisites, and they deserve a larger share of the space that usage currently occupies.

This post is part of CGAP's "Evidence and Impact in Financial Inclusion: Taking Stock" blog series. The series explores recent efforts to synthesize evidence on the impact of financial inclusion and examines whether concepts like usage, financial health and poverty reduction capture the real impact of financial inclusion.