Published on All About Finance

Regulations help explain variations in financial inclusion

Primer plano de una emprendedora usando su teléfono móvil para realizar una operación de banca electrónica.  | © Primer plano de una emprendedora usando su teléfono móvil para realizar una operación de banca electrónica. | ©

More adults are getting access to financial services across the globe—but the pace of progress is highly uneven. According to the latest Global Findex, the share of adults with a mobile money account in Sub-Saharan Africa ranges from the low single digits in economies such as Nigeria to more than 70 percent in Kenya.

Nor do differences in financial inclusion neatly line up with variations in income. Among lower-middle income economies, the share of adults with an account ranges from about 20 percent in Pakistan and Cambodia up to about 93 percent in Mongolia.

If income doesn't tell the whole story, then what if anything do regulations have to do it? Our two new policy notes investigate this question and find that good regulations generally correspond to higher financial inclusion.

Consumer protection is especially significant

Our global policy note updates research originally conducted by Franklin Allen and others and explores why account ownership varies so widely among economies with similar income levels. We had a hunch that consumer protection was a big factor, so we took data from the 2017 World Bank Financial Inclusion and Consumer Protection Survey (FICP) to create a consumer protection monitoring and enforcement index. The index ranges from 0.06 to 1, with a higher score indicating more vigorous rules.

The results confirm our suspicions. We find that account ownership and use of formal saving are higher in economies with more strict consumer protections. Formal saving is also correlated with policies that limit fees, as well as tax incentives aimed at fostering financial inclusion. One way to interpret this is that regulations might matter more in encouraging the use of financial services—rather than just their adoption Consumer protections give people a degree of confidence that they can transact without being defrauded. 

Good regulations support mobile money adoption

Next we look deeper into the adoption of mobile money in Sub-Saharan Africa. We splice the Global Findex with data from the GSMA, which is the global mobile money trade association. The Global Findex captures the share of adults with a mobile money account. The GSMA regulatory index is a composite score comprised of six dimensions which are aggregated to assess the extent to which an economy's regulatory framework enables mobile money. Each economy is ranked on a scale from 0 to 100, with zero being the worst and 100 the best.

We find that mobile money ownership is higher in Sub-Saharan African economies that score well on the GSMA index—and the relationship is statistically significant after controlling for different levels of economic development across the region. Specifically, our data show that a 10-point increase in the GSMA regulatory index is correlated with a 7-percentage point increase in ownership of mobile money accounts. This supports the overall idea that good regulatory practices are associated with more adults using mobile money. Furthermore, recent evidence from the GSMA finds that an enabling regulatory framework increases mobile money usage especially among women and poor adults. 

Which regulations matter the most?

Next, we try to track down the specific regulations driving the results. The GSMA index has six dimensions, and it is possible that some of them are more important than the others. The data shows significant positive correlations between the index and mobile money ownership for the sub-scores measuring know-your-customer (KYC) requirements, authorization, and consumer protection.

It makes sense that these variables would track with higher mobile money ownership. Permissive KYC rules for small, low-risk account holders can enable financial inclusion of the poor (who often lack documentation needed to open accounts). Authorization captures factors like the existence of mobile money legislative frameworks, capital requirements, and the ability of non-banks to offer mobile money services. Good consumer protection policies ensure that customers are aware of all fees and provide an effective avenue for redress—all of which shores up trust in the financial system.

No one-size-fits-all approach to regulation

But our analysis comes with caveats. There is no quick and easy combination of regulations that can unleash financial inclusion. And there are limitations to our analysis. For example, GSMA's index data is only available for 2018, which prevents us from tracking the impact of regulations over time. The same goes for the FICP data, which we use for 2017 only.  

While regulatory enforcement is critical, the dynamic nature of digital finance requires government flexibility. A certain degree of experimentation and improvisation might be in order. The GSMA finds that economies which have frequently revised their regulations generally score higher on the index than economies which are still using their first round of regulations. But one thing seems certain—strong consumer protections are necessary to get popular buy in for the formal financial system.


Dorothe Singer

Economist, Development Research Group

Saniya Ansar

Economist , Development Research Group, World Bank

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