The Financial Inclusion Series—convened by DAI and originally published on the Guardian Development Professionals Network—has explored various themes in the “financial inclusion” agenda, from mobile money and poor people’s financial capabilities to innovative supply models and agricultural finance, among others. The range of subject matter and diversity of authors testify to the breadth of the field and the need to pull from different disciplines and perspectives if we are to meet the challenge of financial inclusion.
With nearly half of global working-age adults excluded from formal financial services, new ways of thinking are imperative. Microenterprise lending showed that the poor are “bankable,” for example, yet it has led neither to a significant uptake of financial services nor to a systemic transformation in the livelihoods of the poor.
While intentionally wide-ranging, the articles in this series yield several recurrent messages:
To achieve financial inclusion, financial services providers must meet the needs of—and provide value to—a variety of stakeholders: smallholder farmers, individual men and women and their households, microenterprises, and small and medium-sized businesses.
Poor people’s financial lives are complicated and varied, so they require a diverse and broad set of financial services (formal and informal) to smooth their incomes, respond to shocks, manage risks, build assets, and invest in productive enterprises. True financial inclusion must go beyond mere access to promote the use of financial services in a way that improves poor peoples’ lives.
Practitioners must better understand the financial capabilities of existing and potential clients in order to deliver services through channels that are appropriate to poor populations. In this context the enabling environment is critical, both to ensure the integrity of vendors and protect the rights of consumers.
Microinsurance, much like microcredit, seeks to bring financial products and services typically reserved for middle and upper classes to the poor. Its particular promise is to offer low-income consumers protection from financial shocks more effectively than existing coping mechanisms such as credit, savings, pooling of community resources, public sector support, or asset sales.
In villages across Africa, Asia, and Latin America, millions of people are meeting regularly in groups of 10 to 30 people to save and borrow small amounts of money, and provide each other with the moral support needed to meet each member’s individual financial goals.
It’s hard to imagine a more explosive, transformative, and empowering trend than the growth of the mobile phone sector in Africa. In 1998 there were fewer than 4 million phones on the continent; today there are around 800 million—a whopping 80 percent penetration. Compare this to the meager 24 percent of African adults with bank accounts. Experts expect there will be around 1.1 billion mobile phone subscribers by 2017.
The microfinance industry has come under withering attack in recent years, pilloried among other things for its high interest rates and its coverage, which is often estimated to reach less than 10 percent of the population. But practitioners, the media, and the public should understand that microfinance is a broad term for a highly differentiated financial sector that is not without its successes. Each type of provider—from banks to savings groups—plays a particular role in providing the continuum of services typically needed to promote “financial inclusion” in underserved areas.
Financial education is often touted as being essential for low-income people. But traditional financial education in both poor and rich contexts too often takes a didactic, classroom-based approach to conveying analytical financial concepts such as budgeting, saving, managing debt, and calculating interest rates. We need to re-think the process of financial education to merge it with product marketing, thereby making it more relevant for customers and more cost-effective for financial institutions.
Does microfinance work? This question has been intensively researched and hotly debated in the development community over the past few years. The answer depends on what you mean by the words ‘microfinance’ and ‘works.’ I’ll explain more, but in a nutshell, if your answer is probably not, you’re likely using a narrow definition of microfinance and a specific notion of what’s meant by ‘works.’ Getting to yes involves a broader definition of microfinance and a more holistic interpretation of what constitutes success, and you need to draw on several strands of research.
The term ‘financial inclusion’ has rapidly entered the mainstream policy discourse in the past seven years. Outside of its natural home in the development community and the financial sector, it now features regularly even in tightly worded G20 Summit communiques.
There is no doubting the growth in popularity of mobile banking. According to Juniper Research, the market for mobile payments is expected to reach more than $600 billon (£393 billion) globally this year–double the figure of February 2011. And many development organisations are riding that telecom wave to reach people who don’t have access to financial institutions.
Characterised by a young, poor, and isolated population with a strong need for basic financial services and fast-growing usage of mobile phones, the Pacific island countries-14 islands spread over 30 million square kilometres-seemed to be a perfect place to develop mobile financial services when the Pacific Financial Inclusion programme (PFIP) started in 2008. Successive assessments found that:
Economic growth is a necessary condition for long-term stability, especially in conflict-affected environments. In Afghanistan, where more than half of the gross domestic product comes from agriculture and 75 percent of the population lives in rural areas, the growth of the agriculture sector is critical to economic prosperity and social stability.
Ten years ago, a low-income Filipina woman described her life to me as “one long risk.” Today, I suspect her life is little different. For all the successes of the microcredit experiment, we have yet to take full account of the individual experience at the center of a life lived in poverty—a life where medical crises, theft, crop losses, or any one of innumerable random shocks can readily erode the hard-won gains of saving, building assets, and participation in the financial system.
In the past two decades, the world’s information grid has expanded massively. Digital signals are all around us. In developed markets, many of these digital exchanges involve electronic payments, but most people in developing countries are still stuck moving paper. Financial transactions lie at the heart of doing commerce, selling goods and services, managing a business, and taking care of one’s family. Making these transactions safer, cheaper, and more convenient should be on the development agenda of every developing country. Yet building a digital payments fabric linking all citizens and businesses in a country is rarely a development priority, in part because the benefits are intangible and diverse.