Financial Inclusion Programmes are not Changing the World
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Financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More programmes play an increasingly important part in international development and aim to increase the welfare of low-income households in low-and middle-income countries. According to the United Nations Capital Development Fund (UNCDF), “Financial inclusion is positioned prominently as an enabler of other developmental goals in the 2030 Sustainable Development Goals (SDGs), where it is featured as a target in eight of the seventeen goals.”
Financial Inclusion is featured in eight of the seventeen Sustainable Development Goals
For many international organisations, financial inclusion boils down to access to digital finance. The UNCDF quote a McKinsey Global Institute Digital report which claims that digital finance alone could benefit billions of people by spurring inclusive growth that adds $3.7 trillion to the GDP of emerging economies within a decade. For Leora Klapper, Lead Economist in the Development Research Group at the World Bank, “we can’t meet the SDGs without Financial Inclusion”. The Global Findex database which is funded by the Bill and Melinda Gates Foundation aims specifically at measuring progress towards the World Bank Goal of Universal Financial Access by 2020.
A long way to go, before we achieve Universal Financial Access
According to the latest available Findex data (2017), approximately 31% of the world population or 1.7 billion adults remain unbanked in 2017 – without an account at a financial institution or through a mobile moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More provider. Remarkable progress has been achieved as the share of adults holding an account has risen from 51% in 2011 to 69% in 2017, but a third of the population remain excluded from banking. Moreover, holding an account is different from using it. Only 52% of adults – or 76% of account owners – around the world reported making or receiving at least one digital paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More in the past year. In high-income economies 80% of adults reported using a debit or credit card to make at least one payment in the past 12 months, while in developing economies only 22% did so.
Financial Services: nice to have but not essential
However, two researchers have undertaken a comprehensive evaluation of financial inclusion programmes and conclude that their impacts are small and variable. The paperSee Banknote paper. More entitled Impact of financial inclusion in low- and middle-income countries: a systematic review of reviews is authored by two academics specialised in international development, Maren Duvendack and Philip Mader. The methodology consists in a “review of studies that synthesise the findings of other studies (meta-studies) regarding the impacts of a range of financial inclusion interventions on economic, social, gender and behavioural outcomes.”
The authors conclude:
- The impacts are more likely to be positive than negative, but the effects vary, are often mixed, and appear not to be transformative in scope or scale, as they largely occur in the early stages of the causal chain.
- The effects of financial services on core economic poverty indicators such as incomes, assets or spending are small and inconsistent.
- The effects of financial services on women’s empowerment appear to be generally positive, but they depend upon programme features (which are often only peripheral or unrelated to the financial service itself, for instance exposure to women’s rights), context, and what aspects of empowerment are considered, and their assessment is confounded by a difficulty of consistently conceptualising and measuring empowerment.
- The effects of credit and other financial services on health status and other social outcomes appear to be small or non-existent.
- There is no evidence for meaningful behaviour-change outcomes leading to further positive effects.
- Accessing savings opportunities appears to have small but much more consistently positive effects for poor people, and bears fewer downside risks for clients than credit.
According to Philip Mader “We think that, if one were to ask poor households to place financial services somewhere in a Maslow-type hierarchy of needs, they would place them near the top – nice to have, but not as essential as things like schooling, health, safety, water, nutrition, sanitation, and so on.”
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