The issue of financial inclusion seems to be everywhere – from the World Bank Annual Meetings to the new UN post-2015 development goals. It’s got buzz in the private sector, public sector and development organizations big and small. Policymakers are increasingly making financial inclusion a priority through specific financial inclusion targets and commitments, such as the Alliance for Financial Inclusion’s Maya Declaration. In fact, World Bank Group President Jim Yong Kim recently launched an initiative “to provide universal financial access to all working-age adults by 2020.”
As we know from the Global Findex, more than 2.5 billion people lack access to even a basic bank account — a huge gap in inclusion and an enormous opportunity. Demographic changes, economic growth and advances in technology are making global financial inclusion more possible than ever before. With a massive new market of people demanding new services as incomes rise among the bottom 40 percent, the stage is set for dramatic leaps in access in the next few years. Emerging technologies are bringing down costs and opening new business models while providing greater access to a range of services.
Recognizing that the time is ripe for significant progress on financial inclusion, the Center for Financial Inclusion developed a consultative process aimed to raise everyone's sights about the possibilities of achieving full inclusion within a foreseeable timeframe – using the year 2020 as a focal point. The process sought to build a more cohesive financial inclusion “community” through the development of a common vision. It brought together experts from the World Bank, IFC and CGAP along with many representatives of the private sector and the social sector. Financial Inclusion 2020’s Roadmap to Financial Inclusion is the result.
With all of the financial inclusion buzz, you would think that we would be closer to full inclusion. But if closing the gaps were easy, it would have happened already. Many factors still stand in the way. In the case of regulatory accommodation to new technology, for example, the gaps result from such factors as the pace of the spread of know-how among policymakers globally, national legislative and political processes, and uncertainty about the risks involved with new models. In the case of fully addressing the needs of customers at the base of the pyramid (BOP), gaps stem from a combination of doubt among providers about the likely profitability of these customers and limited knowledge inside institutions about the financial lives of the poor. In the case of client protection, providers face perverse incentives, while many regulatory bodies are only beginning the major task of establishing robust oversight of market conduct.
We see encouraging examples of financial inclusion in the most remote corners of the world, often done by surprising actors. However, the momentum is uneven. The Roadmap process included many of the thinkers and entrepreneurs behind such initiatives. Each of the five working groups — Addressing Customer Needs, Technology, Financial Capability, Client Protection and Credit Reporting — has developed a roadmap to direct the world community toward the actions most needed to achieve FI2020’s vision of full financial inclusion. Most of the recommendations are addressed either to governments or to providers, but they point the way to actions needed by a range of supporting organizations, including multilateral and bilateral organizations, donors, social investors and non-profits, at both the global and the national levels.
Providers who see the business case for serving BOP customers are asked to adopt a pro-customer orientation by investing in understanding the special character of the BOP, applying opportunities to build financial capability, and committing to consumer protection. The principles also ask providers to work with each other and with partners in the public, private and social sectors to create a healthy ecosystem for inclusion. Many of the requisites for an enabling business environment can only be developed through collaboration, be they standards for interoperability or consumer protection or alignment of providers and regulators around workable credit reporting systems.
Turning to policymakers and regulators, the principles challenge them both to facilitate technologies, business models and providers adapted to the BOP and to develop effective consumer protection. Regulators are hard at work on both of these tasks, but the scale of the challenges calls for even greater efforts. Supporting organizations such as the GPFI, AFI, the World Bank and the United Nations are asked to consider whether their excellent efforts to increase capacity are sufficiently resourced.
1. Financial Capability: Shift the Paradigm
- Shift the paradigm from financial education as knowledge transfer to financial capability as promoting sound financial choices and behavior.
- All participants in financial inclusion to integrate financial capability building into every aspect of work with current and prospective customers
2. Addressing Client Needs: Easy to Say; Hard to Do
- Providers to be customer-oriented by developing the ability throughout the organization to listen to customers and prospective customers.
- Providers to build on the knowledge that already exists on the financial lives of the poor and insights from behavioral economics to create products and delivery systems valuable to customers and actively used.
3. Technology-Enabled Business Models: Pave the Way for Dramatic Change
- Regulators to create facilitating rules that allow technology-enabled business models and providers to operate smoothly at the base of the pyramid.
- Governments to use their own resources creatively, such as G2P payments, to promote technology-enhanced inclusion.
4. Credit Reporting: It Takes a Village
- Providers, governments and credit reporting organizations to make the sustained collaborative effort required to establish credit reporting systems that work for all parties and seamlessly cover the BOP.
- Encourage the use of alternative data to enable “thin file” customers to access financial services, while protecting customer rights to correct errors and sign off on use by third parties.
5. Consumer Protection: Everyone’s Promise
- Providers to incorporate client protection into their professional identity and, as a corollary, to apply a client bill of rights and related standards.
- Regulators and support organizations to set a global goal of effective client protection regulation and supervision in every country by 2020.
You can find the full roadmaps at http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion.
The accompanying chart distills the broadest, most important recommendations from each group in the form of a set of roadmap principles that we hope will be among the key takeaways from the FI2020 process. These basic principles form what might be thought of as a manifesto for financial inclusion. They advocate for major investments of time and resources necessary to achieve full financial inclusion with quality.
It is important to note the significance of the five roadmaps as vehicles for dialogue among many participants working to construct a common vision. With that in mind, these roadmaps will remain works in progress. As the FI2020 process moves forward to engage with more actors, the roadmaps will incorporate their views, building a greater consensus throughout the financial inclusion community. The existence of a stronger consensus within a more self-aware community of actors will, we believe, facilitate the goal of reaching full financial inclusion.
Full financial inclusion could bring individuals, nations and businesses enormous benefits. We know what needs to be done. The political will and the business case are getting stronger every year. With sustained pursuit of the roadmap principles, full financial inclusion within a realistic time frame is possible. FI2020 challenges the global financial inclusion community to commit to these principles and this goal.
About Financial Inclusion 2020
Led by the Center for Financial Inclusion at Accion, Financial Inclusion 2020 (FI2020) is building a movement that mobilizes stakeholders worldwide to achieve quality financial inclusion, using the year 2020 as a focal point to galvanize action. FI2020 engages diverse players through two initiatives: the research project Mapping the Invisible Market and Building a Roadmap to Financial Inclusion with input from hundreds of experts from the private sector and the public sector. A Global Forum in October 2013 will launch the effort to transform the findings into action. FI2020 is made possible through the generous support of Citi, Visa Inc., MasterCard Worldwide, the Bill and Melinda Gates Foundation, and many other leading organizations. The World Bank, IFC and CGAP have been vital partners throughout the project, providing expertise and guidance for our working groups. To learn more about the Financial Inclusion 2020 project, visit www.financialinclusion2020.org.
Photo credit: Accion