Published on Voices

Financial inclusion: Stepping-stone to prosperity

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.


Sri Mulyani Indrawati

Former Managing Director and COO

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