Financial services for the poor is becoming mainstream across the globe, with governments and the private sector recognizing the importance of universal financial access. India is pushing the boundaries of what governments can do to mainstream financial services, leveraging public good infrastructure to enable private providers to affordably serve low-income populations. Over the course of the past year, 23 new bank licenses were issued to address these needs, and a remarkable 180 million new users were reached with basic Jan Dhan accounts. Digitizing government-to-person payments, building unique identities through the Aadhar biometric ID system, and building a public payments infrastructure are all ways in which the Indian Government is using its muscle to promote a broader financial inclusion agenda. China has demonstrated the power of e-commerce through the impressive growth of Ali-Baba and the various financial instruments that sit behind it, from payments to loans, savings, and insurance products. Consumers gain access to services they want and financial services and technology are key enablers of this access. As China adopts a broader financial inclusion agenda and activates its vast public network of agents, we expect to see an acceleration of access in the world’s largest market. On the other side of the globe, Latin American retailers are disrupting traditional financial services in fundamental ways, providing payments services on behalf of banks and embedding finance into the sale of consumer goods. Across the region, deeper inclusion is being driven by entities like convenience stores, mobile network operators, and large retailers. Governments continue to support deepening of financial access through enabling regulatory environments, delivering social payments through digital means, and building the supporting infrastructure to enable financial access.
Within these markets, the industry continues to grow and experiment, fine-tuning early stage innovations into established business models that can grow and have staying power. And regulators in developed and developing countries alike are beginning to get to grips with the new and complex challenges of regulating and supervising a competitive digital financial marketplace. Once the digital rails are securely in place, it is possible to build new and innovative services that ride on those rails, and important structural issues can begin to be addressed, such as open access, competition, interoperability, and open APIs. Smart phones are becoming increasingly available, which opens up a range of new opportunities for providers. Value chains are disaggregating, leaving key functions in the hands of those best able to manage them. New partnerships are developing that play to the relative strengths of different players in the digital value chain. The financial access ecosystem now looks like an ecosystem and includes players as diverse as banks, microfinance institutions, mobile network operators, payment services providers, merchant aggregators, retailers, Fintech companies, energy services providers, traditional payment providers, government departments, regulators, funders, and NGOs. The digital revolution provides new opportunities for a wide range of players to reach the poor with affordable financial services. And this is only the beginning.
Despite this momentum, important challenges remain for the industry. New, disruptive business models mean new challenges for providers, consumers, and regulators. Having access to a financial service means that potentially vulnerable consumers are exposed in new ways, and providers and governments need to find ways to help manage those risks through prudential regulation and stronger industry standards. Regulators accustomed to supervising a relatively limited number of known entities are now faced with a plethora of new and unfamiliar providers, and struggle to keep up with an ever accelerating pace of change. Businesses are still struggling to demonstrate commercial viability, and reaching marginalized communities such as rural and displaced populations and the ultra-poor is a challenge that may require collaboration with governments and NGOs. Some regions have yet to begin the journey toward financial inclusion, with the Middle East and North Africa still lagging behind other regions, although some important first steps are beginning to take shape. In short, as a community, we have made a lot of progress, but much more remains to be done.
The international community has played an important role in supporting this momentum, and CGAP has been a pivotal player in the evolution of the financial access story. Celebrating its 20th anniversary in 2015, CGAP can look back with pride at an evolution that began with support to an incipient microcredit industry in 1995 to a point where the World Bank Group has created an explicit goal of Universal Financial Access by 2020 and financial access is embedded in a number of the United Nations’ Sustainable Development Goals for 2030. Truly remarkable progress. The fact that financial access is seen as an enabler for many important development needs—from health to education to energy—demonstrates just how fundamental the ability to pay, save, borrow, and manage risks are in the lives of the poor. This is now understood, from the standard-setting bodies that determine how the global financial sector will function to governments across the developing world who have taken up the cause of financial inclusion to private companies who continue to push the boundaries of what is possible in reaching the poor.
Working through partners in industry, government, and the nonprofit sector, CGAP uses applied research, advocacy, and knowledge sharing to help the industry identify, frame, and mainstream the elements that will advance the cause of financial access for the poor. Our work in FY2015, described in more detail in this Annual Report, was aligned to five strategic priorities:
- Understanding demand to effectively deliver for the poor.
- Financial innovation for smallholder families.
- Developing robust provider ecosystems.
- Building an enabling and protective policy environment globally.
- Promoting effective and responsible funding for financial inclusion.
I joined CGAP in September 2015 and have been universally impressed and humbled by the quality of work that takes place here. Through our partnerships with governments, standard-setting bodies, funders, and providers of financial services to the poor, we are beginning to make measurable progress towards the ambitious goal of universal financial access. There is still much to do, but strong foundations are in place for achieving this goal in the foreseeable future. As we enter our 21st year, we look forward to strengthening the partnerships that have made this progress possible and tackling the new challenges that will arise. It is an exciting time to be working on financial inclusion.
—Greta L. Bull, CGAP CEO
