While we know a lot about the impact of remittances on growth, investment, poverty, inequality, health, and education, the potential effects of international remittances on the domestic financial system and financial inclusion have not received much attention. There are several ways in which remittances could affect financial inclusion (that is, facilitating households’ access to and use of financial services). First, remittances might increase the demand for savings instruments. The fixed costs of sending remittances make the flows lumpy, providing households with excess cash for some period of time. This might potentially increase their demands for deposit accounts, since financial institutions offer households a safe place to store this temporary excess cash. Second, remittances might increase household’s likelihood of obtaining a loan. Processing remittances flows provides financial institutions with information on the income of recipient households. This information might make financial institutions more willing and able to extend loans to otherwise opaque borrowers. On the other hand, since remittances might help relax households’ financing constraints, the demand for credit might fall as remittances increase.
If someone were to ask you to identify yourself, you would probably reach into your purse, or pocket, and pull out some form of identification. Without it, one loses some of the basic benefits of living in a society. You cannot open a bank account, purchase a home, or vote, and so on. Many countries, however, don’t have a functional identification system. In India, for example, millions of citizens are unable to benefit from social and financial services because they don’t have proper identification. Also, current welfare databases are plagued with fake names and duplications, entered by corrupt officials. Thus, the country has embarked on a massive identification project that will be one of the largest citizens’ databases of its kind.
How inclusive are financial systems around the world? What proportion of the population uses which financial services? Despite all the work we have done so far, most of the figures cited by experts in this field are still just estimates (see, for example, here and here). But this is about to change—in a big way.
To help us understand the scope and breadth of financial activity by individuals around the world, the Bill & Melinda Gates Foundation today announced an $11 million, 10-year grant to the World Bank’s Development Research Group to build a new publicly accessible database of Global Financial Inclusion Indicators. The ultimate goal of the project is to improve access to finance; achieving this goal requires reliably measuring financial inclusion in a consistent manner over a broad range of countries and over time to provide a solid foundation of data for researchers and policymakers. We will carry out three rounds of data collection, starting with Gallup, Inc’s 2011 Gallup World Poll, which will survey at least 1,000 people per country in 150 countries about their access and use of financial services.