financial inclusion

Putting $8.7 billion back in the pockets of Asia’s migrants

Governments and private sector actions can drive down remittance prices for migrants (Credit: DFID-UK, Flickr Creative Commons)
An estimated 215 million people – 3 percent of the world’s population – have emigrated far from home in order to earn enough to support their families. They include workers from Bangladesh who go to Saudi Arabia to work in the construction trade, Afghans who go to Iran to work in the oilfields, and workers from Burkina Faso who go to Cote d’Ivoire to work on the cocoa or coffee harvests.

Toiling far from their loved ones is not their only burden. When migrants send their money home, they are often charged exorbitant fees, which can account for a large portion of the small sums being sent - sometimes upwards of 20 percent – and can inflict a punishing burden on poor migrants.

Can Islamic Microfinance give more people access to the financial services they need to grow their business? (Credit: DFID, Flickr Creative Commons)
Research has shown that financial sector development and the efficiency of financial systems are closely linked to economic growth. Ensuring the provision of financial services to the poor can also address the challenge of poverty alleviation and directly target financing towards economically and socially underprivileged groups. Appropriate financial services, such as savings services, investment, insurance, and payment and money transfer facilities, enable the poor to acquire capital to engage in productive ventures, manage risks, increase their income and savings, and escape poverty.

Will improved identification accelerate financial inclusion? ( Credit: Kkalyan, Flickr Creative Commons)

Wherever individuals are excluded from formal financial services the source of the problem is usually a lack of information. Without reliable information about a borrower’s identity or credit history, lenders will compensate for their inability to evaluate risk by raising collateral requirements, charging higher interest rates, or by refusing to lend to certain borrower groups altogether. This leads to financial exclusion, even among otherwise creditworthy borrowers. Technologies that reduce asymmetric information between borrowers and lenders are therefore some of the most powerful tools to reduce financial exclusion. In recent years, much progress has been made to improve credit reporting institutions around the world. But in many countries the challenge is much more basic: much of the world’s population lacks even the most basic identity proof. To address this problem, many countries have experimented with innovative solutions for improved personal identification.

Last April 21, representatives from government, the private sector, and the financial inclusion world came together for Financial Inclusion Pathways for Women and the Poor. Panels covered a range of topics, including financial education, mobile banking and SME finance. But at the heart of all the discussions was the challenge posed by 2.5 billion unbanked people around the world –1.35 billion of them women. What actions can the public and private sector take to give the financially excluded—especially women who have the potential to transform economies-- access to finance?

Photo: ElishaCasas, Flickr Creative Commons

An increasing number of countries are developing national strategies for financial education and implementing programs to enhance people’s financial capability. At least 36 countries have already established or are in the process of designing a national strategy for financial education according to the OECD. Boosting people’s ability to take sound financial decisions has emerged as a new policy objective, both in developed and developing countries. The recent financial crisis has reinforced the view that being financially capable is important. However, let’s take a step back. What do we know about how capable people are in different countries across the world in managing their finances? Which knowledge and skills gaps exist that could be filled with financial capability enhancing programs? Which populations are the least financially knowledgeable and capable and would benefit the most from any interventions?

Do men and women use financial services differently? This is the question we set out to answer when we conducted six country studies on gender finance in sub- Saharan Africa.

The purpose of our study was twofold. First, we wanted to explore the reasons behind differences in usage of financial products. Second, based on these underlying reasons, we wanted to formulate workable intervention strategies that we could recommend as gender-sensitive financial sector policy approaches for policymakers and stakeholders. The countries we studied included Botswana, Malawi, Namibia, Rwanda, Uganda, and Zambia. Based on 50 to 75 interviews per country with individuals from both urban and rural areas, we analysed how and why men and women are using credit, savings and insurance products.

Image courtesy of UPU

In October 2012, when the first version of the Global Panorama was published, several news agencies and papers wrote: “UN urges increase in role of financial services across global postal sector” or “Posts must exploit untapped potential for financial inclusion”. The surprise was not in the titles but in the interest generated by reports on the postal sector. The intersection between two things which the general public does not automatically associate: the Post and financial services, especially for the poor, seemed to spark interest.

(image: Sean Graham, Flickr Creative Commons)

It has become mainstream to think that digital technologies will have a significant role to play in addressing the financial inclusion challenge in developing countries. This may be so, but if all we in the financial inclusion community do is merely add the mobile phone (or the smart card) to our stock of dearly-held beliefs, we will accomplish little. Technology will not work additively; if technology-based models work it will be because they will have changed pretty much everything. I’m not saying that everything will change: I’m just saying that that should be the bet.

International Women’s Day is when we celebrate the strides made towards equality, but it also reminds us that gender is a powerful determinant of economic opportunities, particularly in developing countries. Financial inclusion is one of the areas where we observe a gender gap—women in developing economies are still relatively more excluded from the financial sector than men, even after controlling for income and education

For the first time, we can quantify this gap using hard data and evaluate how women around the world save, borrow, make payments and manage risk, both inside and outside the formal financial sector. With the release of the Global Financial Inclusion (Global Findex) data, we now have a comprehensive, individual-level, and publicly-available database that allows for comparisons based on more than 150,000 nationally representative adults in 148 economies in 2011. The dataset includes over 40 indicators, but here we’ll focus on three main categories: account ownership, savings behavior and credit.

photo by: Amortize, Flickr Creative Commons

In the old times, the post office was the main connector between cities and villages, moving letters and money to every corner of the country, and contributing towards the territorial consolidation of states under construction.

Nowadays in developing countries, the post office is often seen as an old, inefficient, deficit-making, and outdated public service which has not been able to keep up with the evolving markets. It takes some imagination to see the post office as a potential engine for economic growth and social inclusion.

financial inclusion

Putting $8.7 billion back in the pockets of Asia’s migrants

Can Islamic Microfinance spur Inclusive Prosperity?