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financial inclusion

Cooperative financial institutions – the Missing Bottom?

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

Recent successes in linking lower income clients to the formal banking system via mobile banking and agent solutions have shifted attention away from non-bank deposit taking institutions.  Indeed, the use of modern technology can reduce the costs of service delivery and facilitate the availability of banking services in less densely populated areas. Yet, experience indicates that the roll-out and uptake of these innovative delivery channels is limited by the absence of suitable products and the banking sector’s interest in this market segment.  While banks have started to explore delivering financial services to  lower income segments of the population, these clients are not likely to become their core focus. Same for mobile network operators, who are mostly interested in increasing customer retention rates and offering additional income sources for their agent networks, but do not necessarily focus on providing a range of suitable financial products in a supervised setting. For both players, catering to otherwise unbanked segments of the population is more an add-on, something additional to explore in good times, but – let’s be honest - not a priority during  bad times.

Cooperative Financial Institutions cater to low-income clients in good times, and bad. (Credit: Maciej Dakowicz, Flickr Creative Commons) 	This is why cooperative financial institutions (CFIs) and other forms of member-based deposit taking institutions will continue to be important players in the financial inclusion space. Their market niche is developing suitable products for low to middle-income clients. They usually operate in areas that are otherwise under-banked, and bring added value by collecting deposits and “recycling” these funds through on-lending in the same geographic area. Being savings-based, they depend on the resources of their many poor to middle income clients, and thus have a natural and vital interest in this market segment.  And in contrast to banks, CFIs continue and even expand their services to this market segment in times of crisis: For example, credit unions in the US have increased their membership by 4 million since 2007, while membership in Paraguay surged to 16 percent of the population when the banking sector largely withdrew from retail banking after the 2002 crisis.

Whether weather….and other issues in indexed insurance

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

Crop insurance can improve the lives of farmers, who make up the majority of the world's poor. (Credit: Mukul Soni, Flickr Creative Commons)

How do you insure hundreds of millions of small farmers spread over many developing countries? There is no easy answer. Individual insurance would entail assessing crop yields in millions of farms within the short harvest windows – a virtually impossible task. And even if this were possible, costs would be prohibitive and data quality, a significant issue.

Yet the importance of finding a solution cannot be underestimated. First, farmers make up the majority of the world’s poor. With high dependence on rain-fed cultivation, agriculture is risky. Mitigation of those risks is critical to stabilizing the income of poor farmers. Otherwise, a crop failure could erode savings, lead to inability to service crop loans, push farmers into a vicious debt trap as they are forced to borrow from moneylenders and in extreme cases, lead to starvation or even worse.

Mexico’s G-20 Presidential Agenda on Financial Inclusion

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

Read this post in Spanish.

Recognizing this challenge, G20 Leaders created in September of 2009 an expert group to discuss key issues related to financial innovation and the financing of Small- and Medium-sized Enterprises (SME). As the basis of a concrete action plan to improve access to financial services, this expert group developed nine Principles for Innovative Financial Inclusion. In order to formalize and give continuity to those principles, the Global Partnership for Financial Inclusion (GPFI) was created in December 2010. The Partnership brings together a broader group of G20 and non-G20 countries, along with other stakeholders. The result is an institutional structure that actively participates in the work of financial inclusion.

As shown by projects in countries like Afghanistan, financial inclusion is a global priority. (Credit: IMTFI, Flickr)In its capacity as President of the G20, Mexico has made strengthening the financial system and fostering financial inclusion a high priority. When you consider the coordinated efforts we have seen recently, the impact of inclusive financial systems on both economic activity and vulnerable groups, and the effects of the financial crisis on our financial systems, it is clear to see the importance of financial inclusion.

The Global Findex: The first database tracking how adults use financial services around the world

Asli Demirgüç-Kunt's picture

The post orginally appeared on All About Finance.

The facts are in. 50 percent of adults worldwide have an account at a formal financial institution. 21 percent of women save using a formal account. 16 percent of adults in Sub-Saharan Africa use mobile money. These are just a few of the thousands of data points now available in the Global Financial Inclusion (Global Findex) database, the first of its kind to measure people’s use of financial products across economies and over time.

How to Catalyze Financial Inclusion through Commitments and Strategies

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics. Join the conversation by tuning in on Thursday, April 19 or ask a question now in EnglishFrench, Arabic or Spanish.

Millions in the developing world are blocked from economic opportunity by their limited access to financial products and services.  Consequently, financial inclusion is increasingly a policy priority for governments and financial regulators, many of whom see it as a complement to their financial stability goals. To date, over 60 developing countries have committed to financial inclusion reforms.  But experience has taught us that putting expansion of financial services as a priority is only a start, and that there are other factors to consider in order to move forward towards full financial inclusion that benefits individuals, firms and the economy:

A commitment to strategic reform is needed: Surveys confirm that comprehensive reform programs and clear mandates can accelerate progress towards financial inclusion. Regulators with a financial inclusion strategy are likely to have more financial inclusion activities under their purview and more resources and staff dedicated to working on these matters. Robust regulatory frameworks (which, for example, provide a flexible or graduated approach to addressing concerns regarding Anti-Money Laundering and Financing of Terrorism) can more effectively catalyze the private sector response that is needed to expand financial inclusion. For example, reforms that strengthen financial infrastructure underpin the introduction of low cost and lower risk products and delivery models that are critical to expanded financial inclusion.

Going Digital

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

Depending on where you start, in 500 BC for Coinage or in 1000 AD for paper money, cash has been the undisputed leader in how people pay and get paid.  Sure, there have been innovations with credit cards in the mid-20th century, and an ever growing portion of money supply is composed of electronic value, but for most of the world cash is still king. 

There are good reasons for this. Cash is simple, portable, anonymous, easily exchangeable at an agreed value by both buyer and seller and accepted nearly everywhere.  Yet, the physical nature of cash creates big transaction costs, and a wide range of security and transparency risks.

Digitizing financial transactions has big potential benefits to the poor. (Credit: Blatantworld, Flickr)For all its positive characteristics, cash is often in the wrong place at the wrong time, and it is surprisingly hard to hang onto for very long.   For half the world we manage these barriers through access to formal financial services.  Yet for half the world’s adults and nearly 78% of the world’s poor living on less than $2 a day, the costs of these services prevent them from having something as basic as a bank account. If the poor’s financial transactions were in digital form rather than cash, many more financial services would become affordable and available.

Closing the Gap in Retail Payments

Massimo Cirasino's picture

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of experts and practitioners on different financial inclusion topics.

Financial institutions and market authorities have moved payment systems from the backroom to the boardroom in recognition of the critical role that a well-functioning payment system plays in supporting financial systems and real economies. A sound and efficient infrastructure to process modern payment instruments has the potential to enhance financial inclusion. Widespread use of electronic payment instruments could also create significant savings for governments and other stakeholders.

The World Bank has been paying increasing attention to payment system development as a key component of a country’s financial infrastructure, and has committed to periodically collect and update information on the status of payment and settlement systems worldwide to both enhance knowledge on these matters and help guide reform efforts.

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The most recent World Bank Global Payment Systems Survey contains information on: the legal and regulatory framework underpinning a national payments system, large-value payment systems, retail (or low-value) payment instruments and services including the latest innovations, foreign exchange settlement systems and international remittances and cross-border payments, among other topics. The study is important because it provides a ‘snapshot’ of payment systems worldwide covering 139 countries and serves as an important reference in shaping the international agenda on payment systems issues. The next iteration of the World Bank Global Payment Systems Survey will be launched in July 2012.

Open up the Space: Leveraging Mobile Tech for Financial Inclusion

Ignacio Mas's picture

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

An M-Pesa Agent in Kenya. (Credit: Emilsjoblom, Flickr Creative Commons)The internet did not grow by having established old media companies jumping at the fantastic new opportunities offered by the new medium. For a long time they resisted giving their customers the convenience of immediate online access to their products; they resisted letting their customers tinker with the format (the newspaper, the CD, the TV series) when all they wanted was a component of it (an article, a song, a sketch); they were loathe to trade off lower margins for higher volumes. And when they finally started offering their content digitally, they were more interested in using the new medium to restrict their customers’ options than to enhance their customers’ sense of control: whereas before I could loan a book to a friend under a broad fair use clause, now I can’t easily share my e-book without being made to feel like an e-criminal.

Media companies were too focused on the risk of losing what they had: certain revenue streams and a certain relationship with their customers. It took industry outsiders (Apple iTunes, Amazon) to figure out a commercial path to bring the old players into the new online world.

Why should it be any different with banking for the poor? Why should we expect established banks to see opportunity where they have never seen it before? Why should we expect them to want to disrupt their comfortable business model, attractive margins and well-worn practices – which are what leads them to ignore the majority of the population in developing countries?

Think Finance, Think Access, Think Equal!

Sri Mulyani Indrawati's picture

Read it in Chinese.

Read in French.


I am often invited to pose as an example of how far women can go. And I am typically asked how I feel about my career having worked in positions that were often exclusively held by men. I am of course proud of my achievement, fully aware that at no time in my upbringing was I told that I could not do certain things because I was female. But I am also aware that many women around the world face barriers and challenges that prevent them from succeeding in politics, from earning a living, from looking after their families, from running successful businesses or even from opening a bank account.

I “googled” the words “women and barriers” and I got 48,500,000 results. The World Development Report 2012 on Gender Equality and Development says clearly: Gender equality is smart economics. So leveling the playing field is not only about doing the right thing, it will help economies to develop. Our work on development should help us aspire to get less hits when we search for “women and barriers” on the web.  Removing barriers to access to finance for women and making finance equal is not a small weapon in this battle.