Photo by Ana Caroline de Lima, 2017 CGAP Photo Contest Photo by Ana Caroline de Lima, 2017 CGAP Photo Contest

Reflections on the Impact of Financial Services

In the past decade, we have seen the proliferation of research on how financial services can improve the lives of low-income people. While they provided valuable insights, these studies tended to focus on microcredit or a single financial product, such as savings or mobile money. As a result, an overly simplistic and product-focused story has emerged. Recognizing the need for a more nuanced but clearer impact narrative, CGAP is focusing on synthesizing existing evidence, identifying knowledge gaps and articulating a theory of change that proposes the potential pathways through which the use of financial services helps poor people build resilience and seize opportunities.

CGAP Pathways visual
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Impact and Evidence in Financial Inclusion: Taking Stock

Whether and how financial services improve the lives of low-income people remains the subject of intense debate despite decades of evidence-gathering. The evidence to date appears mixed and often contradictory. As a result, different factions in the international development community argue strenuously either in favor of, or against, prioritizing the expansion of financial services among the poor. All cite existing evidence. In this blog series, we explore recent efforts to synthesize evidence on the impact of financial inclusion, share our perspective on emerging narratives like financial health, examine how measuring access and use has been necessary but not sufficient for the impact story, discuss whether we are using the right definition and metrics to capture well-being, and discuss CGAP’s current efforts to update the impact narrative.

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A growing body of evidence is emerging on financial inclusion. The lack of a cohesive, nuanced story to bring the evidence together is leading to wildly different and overly simplistic interpretations.
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Impact evaluations, reviews, reviews of reviews— there's no shortage of research on whether and how financial inclusion impacts the poor. What should we expect to learn from this growing body of work?
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Financial account usage rates can tell us a lot about the state of financial inclusion, but high usage shouldn’t be confused with impact on customers’ lives.
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Financial health has emerged as a useful framework for talking about whether financial services improve poor people's ability to manage their financial lives. But how can we understand whether better financial management improves people's well-being?
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Today, the global development community generally accepts that poverty is more than just a lack of income. What do multidimensional concepts of poverty mean for those who see poverty reduction as the ultimate goal of financial inclusion?
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CGAP's review of over 100 financial inclusion impact studies shows only 1 in 5 offers important contextual information to explain results. Greater focus on context is needed to understand impact.
Additional Resources
Publication

This paper proposes that 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.
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This paper reviews the main results from randomized evaluations that measure the impact of microcredit and microsavings on business investment and creation, consumption, and household well-being. It also presents evidence from evaluations of products and delivery design and discusses the evidence on microinsurance products.
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This Brief looks at the monitoring and assessment tools the microfinance industry uses to measure elements of social performance such as client poverty levels.