CGAP CEO Outlines CGAP VI Priorities in Her Speech at Annual Meeting
WHAT'S NEXT FOR FINANCIAL INCLUSION?
Greta Bull, CGAP CEO
Address to CGAP Council of Governors Annual Meeting
Wednesday, May 30, 2018
Good morning. And a very warm welcome to all of you in beautiful Dakar. I had the privilege of spending a lot of time in West Africa a few years ago and am thrilled to see how much progress has been made on financial inclusion. Senegal deserves ample recognition – it was one of the strongest performers in this year’s Global Findex survey - moving from 6 percent of the population with accounts in 2011 to 42 percent in 2017.
We meet at a time of reflection for the financial inclusion community: we are wrapping up work on CGAP V and launching CGAP VI; the new Findex has been released, with lots of encouraging news about financial access; and there are many exciting developments in technology that have profound implications for our work. We’re in a time of enormous change – and need to think carefully about the ways CGAP can continue to advance financial services that help poor people capture opportunities and manage risks.
I increasingly find it helpful to look at financial inclusion along three dimensions: Access, Usage and Well-Being. Access means quite simply that a person has opened a bank account or mobile money account. This is straightforward and relatively easy to measure. But on its own, it doesn’t really tell us anything about whether a poor person finds value in owning an account.
Usage means that people find some utility in an account. That utility might come from easy access to funds; it might mean time or cost savings; it might mean security or added confidence – or a combination of factors. We have various measures of usage, primarily the World Bank’s Findex on the demand side and GSMA’s State of the Industry Report on the supply side. These measures show that we have made progress on usage, albeit more slowly than some would like. But usage data don’t tell us what we most want to know: namely, do financial services provide any real benefits for the poor?
Which brings us to our third dimension: Well-being. Well-being involves concepts our community has actively promoted for years, like consumer protection and impact. But these concepts are being actively challenged by new developments in the financial sector and need to evolve. It also includes a relatively new idea, financial health, which is being promoted by a number of our members and is still a novel concept in our markets. Well-being is fundamentally important to our community, and yet, we don’t really have clear metrics to tell us whether our work on access and usage is actually improving lives. There are impact studies that provide pieces of evidence, but we don’t yet have a comprehensive or clear picture of how financial access and usage shape well-being.
Let’s dig into each of these, both to understand the progress we have made and to describe some of the challenges ahead. I’ll also explain how the interplay between these three dimensions has shaped our thinking about CGAP VI.
Access. Access has been a big focus of our industry’s attention in recent years, and in this area, we have much to celebrate. The Findex results show that we have made good progress since 2011. The number of people with access to an account continues to rise, with 1.2 billion people gaining access since 2011. Globally, 69 percent of adults now have accounts – up from 51 percent in 2011.
The big success story this year is India, which went from 35 percent of the population having accounts in 2011 to 80 percent in 2017. In numerical terms, this means roughly 273 million Indian adults obtained bank accounts in the last six years, a truly astonishing achievement. India has also made remarkable progress in closing the gender gap for account ownership, with 77 percent of women holding accounts in 2017, up from just 26 percent in 2011. The gender gap for India during that period went from 17 percentage points to just 6. India has also been successful in reaching the poorest, almost tripling access for the lowest two income quintiles. And penetration of accounts in rural areas has also grown at a remarkable pace, more than doubling between 2011 and 2017. There is a lot to learn from the Indian government’s approach, and CGAP has been actively sharing these lessons in other markets, particularly in sub-Saharan Africa.
There was also good news across Africa in this year’s Findex, proving that mobile money is not a uniquely East African story. Seven countries in the region came in above 50 percent access in the 2017 Findex, and three cleared the 80 percent mark. 2017 also brought an important shift: while advances in access in the 2014 Findex were largely concentrated in eastern and southern Africa, they were distributed more widely in 2017, with big advances in West Africa in particular. Eight countries experienced improvements of more than 20 percentage points between 2014 and 2017, and six of those countries were here in West Africa, including four in the WAEMU region. West Africa is not yet on par with the early adopters, but they are rapidly catching up. Overall, sub-Saharan Africa saw access to accounts increase from 23 percent in 2011 to 43 percent in 2017, largely driven by mobile money. This represents the addition of roughly 140 million new accounts in the last six years – which is particularly impressive given it was not driven by a single government, but rather by the private sector, working across a multitude of different regulatory and commercial environments. Even really challenging countries like the DRC, Liberia and Mali saw double-digit increases. Given the issues these countries face, this is truly remarkable progress.
It has been observed that the growth rate of account ownership actually slowed between 2014 and 2017, and this is worth commenting on. As we reach more and more people with financial services, each gain at the margin will be just a little harder to reach. This points to the next challenge in improving access: addressing uneven progress between countries and ensuring that marginalized groups are adequately served.
Let’s look at these two issues sequentially. First, this year’s Findex helps us better interpret uneven progress between countries because we can now track improvements in access against policy choices over time. CGAP recently published a report on the basic enablers of digital finance, namely: allowing non-bank e-money issuers, tiered and risk-based Customer Due Diligence, the use of agents, and appropriate consumer protection. Although we have not yet assessed this fully, this year’s Findex does appear to support the notion that countries with enabling regulations experienced big improvements in access, while markets that did not often made slower progress, or no progress at all. For example, Ghana and Senegal put in place relatively enabling regulations that opened their markets up to competition, and enjoyed rapid growth in access as a result. Mexico and Nigeria, by contrast, have been much more careful about opening up and have experienced slower growth, with both countries actually going backwards in the latest Findex.
Markets like China, India, Iran and Mongolia demonstrate that government can play an important role beyond simply enabling new entrants. Government policy in each of these markets – particularly in activating state-owned bank accounts and promoting government payments into those accounts - has played an important role in making progress on access, albeit in very different ways.
Second, addressing the access gap for marginalized groups is more difficult to resolve, as it involves a complex array of factors that may or may not be directly affected by policy choices. But there are clear hints of actions that can be taken to reach marginalized groups.
Let’s start with gender. In some countries, low access for women actually brought down the national average. For example, Pakistan has made many good choices on enabling regulation and market infrastructure, but progress has been modest: from 10 percent in 2011 to 21 percent in this year’s Findex. Perhaps the answer lies in the gender gap: Pakistan would likely do much better on achieving financial access nationally if more than 7 percent of its women were banked. Similarly, Bangladesh made solid progress on inclusion generally, but this achievement is largely obscured by the fact that access for men grew rapidly, while access for women grew at a far slower pace. The gender gap in Bangladesh actually widened from 11 to 29 percentage points, again dragging down the national average. If both countries had prioritized access to accounts for women as much as they did for men, their overall access numbers would be 35 percent and 65 percent respectively. Leaving women behind is simply not a good strategy for achieving full financial inclusion.
By contrast, a number of countries have shown that explicitly targeting accounts at women and backing this up with social payments made directly into women’s accounts can make a difference. India has done this, as has Iran, which reached developed world levels of account access in the last six years and reduced its gender gap from 23 percentage points to 4. Countries like Indonesia, Argentina, the Philippines, Laos and Mongolia all had reverse gender gaps in 2017.
Beyond gender, progress has also been made in extending reach to rural areas. The percentage of rural households with an account increased from 44 percent in 2011 to 66 percent in 2017, driven by big shifts in India and China, and smaller but substantial improvements in sub-Saharan Africa. In the large Asian markets, this was primarily driven by increasing access to bank accounts, mainly in state-owned banks. But as you can see from this graph, mobile was the factor that made the difference in sub-Saharan Africa. As in many things, Kenya leads the way. Rural Kenyan households with accounts grew from 38 to 81 percent, thanks to the ubiquity of mobile money. But Ghana is clearly not far behind and the same pattern is emerging in Senegal and many other African markets. Given that roughly 75 percent of Africans live in rural areas, the importance of mobile money in Africa cannot be overstated. And, as you can also see from this graph, their entry is enabling banks and other financial institutions to enter the market. The proportion of people with bank accounts, including in rural areas, has grown across virtually all markets where mobile money is present.
What does this mean for CGAP? On access, CGAP will shift from demonstrating generally what factors are needed to create access since this is by now well-established. We will increasingly focus our attention on leveraging all of you to advocate for basic enablers in markets where further gains are needed, like Nigeria, Mexico and the Middle East. We will prioritize improving access for marginalized groups like smallholder farmers, women and youth, and for the microenterprises that create livelihoods for the poor. We will also work on improving delivery models that are able to reach the poor at low cost with the services they need.
Usage. Our community has been focused on account usage for a long time, not just because it is an important proxy for value, but also because we need active usage for mass-market business models to work. We still have a lot of work to do on usage, but some clear lessons are emerging.
Generally, usage lags behind access, sometimes by a lot. In India, despite huge gains in access, 48 percent of registered accounts remain dormant. For mobile money, growth in 90-day activity rates has also been slower than we would like. The GSMA estimates that these have only grown from 26 to 36 percent over the last five years, although the number of providers with activity rates above 50 percent has increased and the number of low activity providers has fallen by half. We also know from the Findex that the number of people in developing countries who made or received a digital payment in the last year grew from 32 percent in 2014 to 44 percent in 2017. While we have not yet solved the usage challenge, a larger number of providers are gaining traction, and we are beginning to get a clear picture of what success looks like.
So how do we go about increasing usage rates? Both Findex and the GSMA provide interesting insights into the levers we have at our disposal.
From a provider perspective, the GSMA identified several factors: a robust agent network so people have convenient places to transact; enabling mobile money regulation so providers have an incentive to invest; and a digital account-based model so more use cases can be supported. In addition, they found that providers who serve as integrated platforms for the wider payments ecosystem have higher usage rates. High usage providers have a larger number of partnerships, supporting integrations with 7 banks, 95 billers, 31 bulk disbursement partners and 6,500 merchants on average. Integration pays off for both consumers and providers. Consumers have a wider range of use cases at their disposal, including government to person and wage payments, merchant payments and bill pay. And platform providers have higher profitability – 42 percent higher than the average. Agents, regulations and integrated platforms are important levers for providers – all areas we will be looking at more closely in CGAP VI.
Findex data mirrors what we are seeing from the GSMA – payments into accounts and agents supporting those transactions are equally important from the demand side perspective. For example – Findex shows that for a number of important use cases - including receiving agricultural payments, paying utility bills, sending or receiving domestic remittances, and receiving government payments – there was a clear shift away from cash and towards accounts between 2014 and 2017. This demonstrates that people increasingly have accounts and are able to use them. But there is also considerable room for growth. For each of these use cases, the proportion of people using accounts rather than cash is still quite low. Governments are doing relatively well, although there is clearly further room to grow. With the other use cases, the growth potential is immense. For example, 30 percent of Africans received payments for agricultural products. If those payments could be digitized, it would make accounts more useful for farmers and create payment flows that would help build viable rural agent networks.
Ghana is a place where access and usage are coming together to tell a story about how to improve financial inclusion for the poor – illustrating the importance of regulations, agents and platforms for active usage. CGAP has been very closely involved in Ghana since 2011, and supported the government’s efforts to revise its mobile money regulations in 2015. As a result, here is what we saw. In response to more enabling regulations, industry invested in growing the agent network, which quintupled to reach over 150 thousand active agents by 2017. Account access grew in parallel, reaching over 11 million active users in just two years. Usage rates have increased dramatically in parallel: with the number of transactions per month more than doubling between 2013 and 2017, and the average balance on these accounts growing seven-fold during the same period, perhaps boosted by the regulatory requirement that providers pay interest on mobile money accounts. MTN Ghana, which is the largest provider in the market, has active usage rates of 73 percent, well above the industry average of 36 percent. It also has a large and growing number of integrations, enabling it to act as a platform for other providers. As we have seen in Kenya, rapid growth in mobile money has also had an impact on the banking sector: in 2011, only 29 percent of Ghanaians had a bank account. By 2017, 43 percent did.
CGAP will continue to focus attention on improving usage rates under CGAP VI. We know that platform models can create scale, lower costs and enable more use cases for the poor. Our work on digital rails – including open APIs, interoperability and next generation agent models – is aimed at increasing the integration and physical footprint we know drives usage. Our work on Financial Innovation for Development supports financially robust new use cases in energy, agriculture, health and education that not only provide the poor with services they want, but also support the mobile money ecosystem. Our work on segments seeks to increase usage rates for excluded groups, and our work on emerging business models is helping us think about how new players and technologies can build use cases that reach the poor with services that meet their needs.
Well-being. This brings me to our final, and perhaps most important, area: well-being. As more people gain access to and use financial services, we must remain vigilant that they not only do no harm, but that they actually benefit the poor. I see three elements to this: firstly, ensuring that consumer protection frameworks evolve to keep pace with changes in the industry; second, encouraging providers and regulators to adopt a financial health perspective; and finally, deepening our understanding of the ways in which financial services contribute to the SDGs.
The first priority is to work with providers and regulators to make sure that, as an industry, we do no harm. The entry of a diverse group of new providers, with very different business models, means that we must proactively adapt our approach to consumer protection, which is not necessarily something a big tech or an energy services company has had to think about much. It also requires that we broaden our thinking on consumer protection to include what the Economist has pronounced will be the oil of the 21st century: data.
For example, hybrid delivery models, like we see emerging in India and other large markets, pose new challenges and opportunities. Big tech companies like Google, Facebook, Amazon and Alibaba are entering the market as payment providers – offering a potential benefit in terms of driving the cost of payments to zero. But these companies make money from the monetization of consumer data, and pose interesting new challenges around recourse, data protection and privacy, security, and competition policy. They also create important business model challenges for existing providers, who must build costly cash-in cash-out networks to reach the poor, who have neither the bank accounts nor the smart phones required to access BigTech services. Can they compete? Or will they even try, given how much more cost effective over-the-top services can be, even if they don’t reach the very poor? These are questions CGAP needs to remain focused on amidst all the excitement surrounding new technologies.
In 2015, the GSMA published a code of conduct to encourage its members to provide mobile financial services responsibly. They will be rolling out a certification program for their members who adhere to best practice against the code of conduct – five MNOs have already been certified. The GSMA is to be applauded for its proactive approach, but new business models leave gaps: the code of conduct, for example, does not cover digital credit, because credit risk is taken by the entity offering the credit, not by the MNOs providing the channel. Clearly, there are opportunities not only to deepen work on consumer protection as digital finance evolves, but also to widen it to new kinds of providers.
Financial health is an area that has gained momentum in recent years, driven initially by the Center for Financial Services Innovation’s pioneering work in the United States. In 2017, this was tested as a framework for emerging markets by CFSI and Accion’s Center for Financial Inclusion, supported by a number of CGAP members. The MetLife Foundation more recently deepened this work by exploring perceptions of financial control and security across ten countries. CGAP has also made important contributions to the thinking about financial well-being through its work on customer centricity.
Early work in this area shows promise, but there is a lot more to do to put this thinking into practice and at scale. There are a number of challenges: financial health is a qualitative measure, so it is difficult to build clear indicators that enable us to track it. It is also likely to vary significantly across different country contexts. But CFSI’s findings in the United States demonstrate just how important it is to consider financial health as increasing numbers gain access to financial services. In the US, one of the world’s richest and most banked countries, more than 57 percent of adults struggle financially. Even more astonishingly, in 2015 the U.S. Federal Reserve conducted a survey on economic well-being among 5,000 U.S. households and found that 46 percent of those interviewed could not come up with $400 in an emergency. Coincidentally, the Findex also tells us that 46 percent of those interviewed in emerging markets cannot come up with a proportional amount of money in an emergency. Wealth clearly does not equate to financial health. We need to dig further into ways we can help providers and regulators to promote positive customer outcomes in financial services delivery.
The third dimension of well-being is impact. Here, I think the picture is incomplete. We have a growing evidence base that financial services provide positive benefits for the poor. We know for example that proximity to agents helps people, especially women, by allowing them to diversify economic activities and draw on geographically dispersed social networks in times of need. We know that women, when financially empowered, save and invest for the benefit of their children. And that increased savings leads to more investment in a family’s health and children’s education. Access to clean energy provides clear benefits in a number of ways, but the importance of the link to financial inclusion is less well explored. The same is true of water, education and health.
Our work in CGAP VI will expand our focus on well-being, covering new frontiers in consumer protection and impact, and digging into financial health as a concept. Our work on supervision and market conduct will help regulators, supervisors and consumer protection agencies to assess and manage emerging risks as markets evolve. We will work with regulators both locally and globally to address emerging concerns around data, cross-border money flows, competition and novel technologies like artificial intelligence and cryptocurrencies. Finally, we want to work with the impact research community, to ensure that the important work they do is focused on answering questions of importance to our community, so that donor funding and policy decisions can be made on the basis of solid evidence on the ways financial inclusion benefits the poor.
Closing. In closing, the increasingly rich set of data resources we have at our disposal show that this community has made significant progress on financial inclusion in the last six years. There is clear evidence that a concerted effort by the private sector, policy makers and donors can make a difference in improving financial inclusion for the poor. And CGAP and its members and partners have been an important part of that change for over 20 years. We have collectively provided access to financial services for 1.2 billion people since 2011 and driven usage rates up, slowing but significantly. But each new case at the margin takes us closer to groups that are harder to serve – women, the rural poor, youth and those affected by conflict. Reaching these groups will require a stronger push and an evidence base that demonstrates that it is worth investing the resources to reach every adult on the planet. There is still much more to do.
I will leave you with this thought. We know that 1.7 billion people globally still lack access to an account; 28% of Findex respondents in developing countries said they have no account because they have insufficient funds – in other words, because they’re poor. This is a bigger problem than the financial inclusion community can solve on its own. There are many other factors that will create the livelihoods and protections that will lift people out of poverty and reliably keep them there. But this community does have an important role to play. Only 1% of Findex respondents said that they had no account because they had no need for financial services. The poor know that financial services are important to helping them manage their lives more securely. It’s our job to make sure that we keep making those services available, affordable and useful for the poor, while at the same time ensuring that the technological developments that make this possible do no harm. We need to create the economic opportunities that will allow the last 28 percent to have enough money to access the services they know they need.
To that end, we have created some high level aspirational targets for ourselves as an industry under CGAP VI. On access, we want to see the gender gap reduced by 33 percent by the next Findex, and hopefully cut in half by 2024. We want to see all four of the basic enablers in place in at least 65 percent of markets, which should encourage further growth in account access. On usage, we want to see the GSMA’s measure of DFS providers with high usage rates increase by 50 percent in five years, and digital account usage increase by 36 percent in the next Findex. Finally, on well-being, we want to see account costs as a barrier to uptake reduce by 25 percent in the next Findex, demonstrating that scale and a more mature industry can continue to serve the poor with the services they need at an affordable cost. If we can achieve these collective goals, we believe that we can continue to make significant progress on both access and usage in the next five years. At the same time, we need to deepen our understanding of well-being so that we can be more precise about our goals.
We look forward to sharing our plans for CGAP VI with you during the coming week, and explaining how those plans will help us achieve our collective objective of helping poor people capture opportunities and build resilience. Thank you.