Research & Analysis

Financial Inclusion and Development: Recent Impact Evidence

Global and national-level policy makers have been embracing financial inclusion as an important development priority. The G20 made the topic one of its pillars at the 2009 Pittsburgh Summit (G20 2009). By Fall 2013, more than 50 national-level policy-making and regulatory bodies had publicly committed to financial inclusion strategies for their countries (World Bank 2013a, AFI 2013). And the World Bank Group in October 2013 postulated the global goal of universal access to basic transaction services as an important milestone toward full financial inclusion—a world where everyone has access and can use the financial services he or she needs to capture opportunities and reduce vulnerability (World Bank 2013b).

Policy makers have articulated these objectives in the conviction that financial inclusion can help poor households improve their lives and spur economic activity. But what is the evidence for this type of positive impact? This Focus Note takes impact to mean those effects that can be traced to a specific intervention and that would not have occurred otherwise, thus analysis at the micro and local economic levels focuses primarily on the relatively new evidence from randomized control trials (RCTs) or quasi-randomized impact evaluations. At the macroeconomic level it highlights studies using country panel data comparisons.

This Focus Note is organized in three sections. The first section describes the extent to which poor households typically live and work in the informal economy and explores the implications of this for how access and use of financial services can benefit them. The second section summarizes recent empirical impact evidence at the microeconomic, local economy, and macroeconomic levels. The third section tees up two areas in which inclusive, low-cost financial systems can generate additional, indirect benefits for other public-sector and private-sector efforts.

In summary, the accumulating body of evidence supports policy makers’ assessments that developing inclusive financial systems is an important component for economic and social progress on the development agenda.