Practitioners and the Global Findex Data
With the release by Gallup and the World Bank of the Global Findex (Financial Inclusion Index), the path to financial inclusion has just been made a little easier to travel.
Last year we (the Center for Financial Inclusion) asked practitioners, investors and others to tell us about the biggest “Opportunities and Obstacles to Financial Inclusion.” They identified “Limited understanding of client needs” as the fourth-ranked obstacle and “Improved demand-side information” the tenth-rated opportunity. The availability of data from the Global Findex will go a long way to satisfy those needs, and if data is as important as our respondents believe, it means that a significant constraint to inclusion is starting to give way.
The Global Findex will give providers and other financial inclusion industry participants the ability to test their understanding of prospective clients against the voices of 150,000 real people. Practitioners will be able to explore the database of residents of their own countries to examine current behavior. This can even provide the basis for a first cut at client segmentation. The Findex will challenge providers to act on the basis of a clear and empirically-based picture of their target markets, rather than on preconceived notions or hunches. The Findex will not substitute for careful market research and listening to clients. Its questions are too limited for that. But it will offer directions for such research and questioning, and will act as a reality check for findings.
To give just one example, Findex shows clearly that the existence of a bank account should not be used as a proxy indicator for savings. While 43 percent of adults in developing countries have a bank account, only 18 percent of those same adults say that they are saving at a formal financial institution. What are the rest doing with their accounts? It appears that a great many people use bank accounts mainly as a way to get paid. They receive salaries and payments for goods they sold (15 percent), government welfare and pension payments (7 percent), or money from family members (6 percent). Once paid, they withdraw most of the funds and then function in the cash economy as they may have done before having an account. This is confirmed by the fact that most people don’t make many transactions: about 80 percent of account holders have no more than 0, 1 or 2 withdrawals per month (and a similar number of deposits). Not only are they not using the accounts for savings; they are not using them for money management either.
And why not? Possibly because they don’t think they have enough money to make using a bank account worthwhile. This is by far the biggest reason people gave for not opening an account in the first place (65 percent of all those without accounts).
At the same time, many people responded that they are actively saving, just not in a bank account. Over half of the savers in Africa, the Middle East, Latin America, and Eastern Europe/Central Asia (and nearly half in South Asia) are saving in some form other than in a financial institution. The most extreme example of this, pointed out in the first paper on the Findex, by Asli Demirguc-Kunt and Leora Klapper, is that in Georgia, a tiny 3 percent of everyone with a bank account reports using it for savings.
The messages about accounts, payments and savings are broadly consistent with the detailed findings that emerge from very different kinds of analysis such as the financial diaries and other deep portraits of financial services users (see, for example, “The Financial Behavior of Rural Residents”). It is most reassuring to find that the picture derived from a very large scale global survey is consistent with that derived from close observation.
What does this mean for financial services providers? First off, it means little until they look closely at the data from their own country and demographic group. The findings I just cited come from global and regional cuts of the data, but there are wide variations by country that any provider would need to examine – and fortunately, Findex is designed to encourage such investigation.
If I were designing a savings product, this information would give me a wealth of questions to pursue: about motivations and methods for savings among prospective clients, about their income levels relative to the costs of operating an account, and about the possibility of linking to sources of payment as an entry strategy. It would prevent me from making the blithe assumption that simply offering a no-frills bank account is an effective way to promote savings. And that would put me (and my clients) on a path to financial inclusion.