Financial inclusion: Stepping-stone to prosperity


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In Pakistan, Salma Riaz, right, shows Saba Bibi how to use her new cell phone to receive payments. © Muzammil Pasha/World BankTwo and a half billion people in the world do not have access to formal financial services. This includes 80% of the poor — those who live on less than $2 a day. Small businesses are similarly disadvantaged: As many as 200 million say they lack the financing they need to thrive.

This is why we at the World Bank want men and women around the world to have access to a bank account or a device, such as a cell phone, that will let them store money and send and receive payments. This is a basic building block for people to manage their financial lives.

Why is this so important? Financial inclusion helps lift people out of poverty and can help speed economic development. It can draw more women into the mainstream of economic activity, harnessing their contributions to society. And it will help governments provide more efficient delivery of services to their people by streamlining transfers and cutting administrative costs.

A step out of poverty

Studies show that access to the financial system can reduce income inequality, boost job creation, and make people less vulnerable to unexpected losses of income. People who are "unbanked" find it harder to save, plan for the future, start a business, or recover from a crisis.

Being able to save, make non-cash payments, send or receive remittances, get credit, or get insurance can be instrumental in raising living standards and helping businesses prosper. It helps people to invest more in education or health care.

There is ample evidence of the social and economic benefits of improved access to financial services. For example, in India and Mexico, expansion of bank branches has been linked to reduced rural poverty and increased incomes and employment.

In Mexico, the opening of 800 bank branches in 2002 that focused on low-income clients led to a 7.6% increase in the number of informal business owners. Total employment also rose by 1.4% and average income went up by about 7%.

Opening financial doors to women

Women are at a particular disadvantage in accessing financial services. In developing economies they are 20% less likely than men to have a bank account and 17% less likely to have borrowed formally. They have less access to safe savings vehicles and are more likely to use informal, and therefore probably riskier and more expensive, mechanisms.

If women had better access to the financial system - even so much as a basic deposit account at a bank - it would be a major step in the direction of greater wealth and greater economic empowerment. And when women earn money and have more control over household spending, they spend it in ways that benefit children by investing in education and health.

Improving government services

Improvements in access to financial services will provide benefits to governments as well by helping them to deliver their services more effectively. Digitization of cash payments can help governments and firms better target subsidy and benefit programs. Broader participation in the financial infrastructure will also reduce waste and inefficiency and boost public expenditure savings.

In Brazil, for example, targeted social transfers to the poor made through accounts rather than cash lowered administrative costs by 82%.

The private sector, too, will play a critical role in providing new and improved financial services. Governments can help by creating a regulatory and policy environment that encourages greater private sector investment in the financial sector.

Take for example, the Association of Southeast Asian Nations (ASEAN), one of the most dynamic regions in Asia. Over 12% percent of the unbanked in the world live there, including 6% in my country, Indonesia. Across ASEAN, small and medium size enterprises account for 96% of all firms, employ between 52% and 97% of all people. But fewer than 15% of these businesses have access to credit.

ASEAN will be critical to achieving the goal of universal financial access. It has already taken impressive steps and set ambitions goals for financial access and inclusion. The World Bank Group is particularly encouraged to see that Malaysia has made financial inclusion one of its top priorities as chair of ASEAN in 2015.

The World Bank Group is working with ASEAN in a number of ways, including measuring levels of financial development, monitoring compliance with international standards for financial sector supervision, and bolstering aspects of the financial infrastructure, such as payments, remittances, and credit information systems.

We are also working to get countries and financial institutions to bring low-income people into the financial system; for example, in Indonesia and Vietnam by digitizing social transfers.

Financial inclusion matters not only because it promotes growth, but because it helps ensure prosperity is widely shared. Access to financial services plays a critical role in lifting people out of poverty, in empowering women, and in helping governments deliver services to their people. It is crucial in the fight against poverty.

Join the Conversation

Iwan Sugondo
March 21, 2015

I am very much in favor of bringing down all the barriers of 'old ways' of banking to include each and everyone of the population into the banking system. OJK the Indonesian Financial Service Authority has brilliantly launched a new Branchless Banking initiative called Laku Pandai that will enable a truly inclusive financial service to the unbanked. I have had the pleasure to work with CGAP and truly appreciate the focus on lifting people out of poverty. This is an exciting time for financial inclusion in Indonesia!

Chairil Tarunajaya
March 22, 2015

Interesting article Bu Mulyani !
My team had conducted a small research regarding this financial inclusion issue in Indonesia using Digital Financial Services (DFS) schema. If you are interested to know more, you can download our report in following link :…
Have a good day.
Chairil - Deloitte Consulting
Indonesia FSI Country Leader
[email protected]

March 23, 2015

I was not surprised to read somewhere that there are more Indonesians with cellphone subscription than those with bank account. my team dont see one as more important than the other so we are working on a user-friendly mobile app that will help folks especially women and smallbiz owners to manage their finances, believing that this will better their lives. btw, you will like the sound of this: when i visit bazaars and exhibitions i paid with mobile banking and the small business owners at the receiving end will know that the payment has gone through by checking their cellphone. Things are going the way your article is saying.

Sri Mulyani Indrawati
April 02, 2015

Everyone, thank you for your interest in financial inclusion and work you are doing on this issue. Making sure that people worldwide, including in Indonesia, have access to finance is important to our work since it’s a stepping-stone to prosperity. As you know, we are working hard with our clients and partners to achieve universal financial access by 2020, and Indonesia is among the 25 countries we focus on. If you’re interested in learning more about our work on financial inclusion, please visit our <a href="">Financial Inclusion site</a>.

Ade C. Setyawan
August 20, 2015

whether the goal of inclusive finance is poverty alleviation?

Prof I Sirkeci @ Regent's
February 15, 2016

Great report. Surely this is one reason why informal channels are used for remittances.

ahmad jamili
April 19, 2016

Salam,yang mulya ibu sri, saya sangat setuju atas apa yg ibu paparkan,inilah kunci perubahan dunia ke depan termasuk negara Indonesia yg kita cintai.terkait perubahan holding world bank ke depan hrs segera terwujud,insyaallh semua akan mendukung lahir dan batin,demi keadilan dan kesejahteraan dunia ini.amin semoga ibu senantiasa diberikan kesehatan,kekuatan,kesabaran dan keberkahan yg Maha Kuasa .amin,salam dari sy di Bogor