How is the world – and the World Bank – doing on its campaign for <a href="http://ufa.worldbank.org/">Universal Financial Access</a> (UFA) by 2020?

With 2020 just a short year away, this question will be asked wherever financial inclusion is discussed at the World Bank Spring Meetings this week. Only so much can change in a year, so it is just a small leap to imagine the likely situation in 2020. During last year’s meetings, the World Bank cited a figure of 69 percent of adults in the world having accounts, according to the 2017 Global Findex data collection round. <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/09/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results-08032018-1.pdf">Our own look at the 2017 Findex numbers</a>, which removes fully dormant accounts, shows that only 48 percent of adults in low- and middle-income countries had accounts that they actually used.

We think this is the right number to focus on: it sets aside the many useless accounts that inflate the rolls and avoids the overly rosy picture that emerges from including high income countries where account access is no longer a relevant challenge. Based on what we’ve seen in the past several years, we could guesstimate that by 2020 active account access in the developing world will be somewhere between 50 and 60 percent of adults, still well short of universal. We won’t know the 2020 result until 2021, when the Findex 2020 data is published. The Findex team is gearing up now for that massive data collection and analysis effort.

The World Bank could declare victory, recognizing the enormous increases in account access that have occurred, and expressing confidence in the momentum around financial inclusion across the world, which will surely result in universal access within the next decade.

Meanwhile, the World Bank and its partners are focusing on upholding their institutional commitments to the UFA campaign. The bank pledged to contribute to the inclusion of one billion people. Many others have also made numeric pledges, including VISA, Mastercard, and GSMA (500 million people each), large mass-market-oriented financial institutions (Ant Financial, China, 100 million; Equity Bank, Kenya, 50 million; and Bank Mandiri, Indonesia, 50 million) and associations like the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/partnership-for-responsible-financial-inclusion/">Partnership for Responsible Financial Inclusion</a> (70 million) and the <a href="https://www.wsbi-esbg.org/About-us">World Savings Bank Institute</a> (400 million). I am aware first hand of the efforts of some of these organizations to take their pledges seriously, putting in both resources and high-level attention. This week we hope to see some of these partners report on the progress of their efforts.

With the departure of its former president, Jim Kim, who championed the UFA effort personally, one wonders how much attention the World Bank will continue to pay to financial inclusion. The new chief, David Malpass, begins his term with this weeks’ meetings. Malpass, a former Bear Stearns economist and Trump campaign advisor, has been <a href="https://foreignpolicy.com/2019/02/05/will-david-malpass-run-the-world-bank-or-ruin-it/">highly critical</a> of the World Bank. Understandably, World Bank watchers are speculating intensely over whether he will pursue his critiques of the bank, though in the lead-up to his arrival he softened his prior calls for the bank to end lending to upper middle-income countries like China and Brazil and affirmed the focus of the bank on elimination of extreme poverty and on economic growth. This sounds compatible with maintaining a focus on financial inclusion, though staff inside the Trump foreign policy world have reported that the administration does not often use the words “inclusion” or “inclusive”, preferring “market development.”
<blockquote>Unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly.</blockquote>
Nevertheless, unless the new president takes the World Bank in a radically different direction, it's hard to see his arrival affecting the UFA campaign greatly. Perhaps it will not receive the same spotlight it has enjoyed in recent years, but work will undoubtedly continue off stage. As bank staff members I recently spoke with noted, financial inclusion is embedded in many departments of the bank, with dozens if not hundreds of professionals working with individual countries to make progress every day. Barring a drastic turn in the World Bank’s mission, this will continue, regardless of who takes the helm.

The Outlook for Universal Financial Access in 2020

From Beth's Desk

Access Usage Gap

Enabling Environment

Financial Inclusion Strategy

Blog Post

In the March 14 <a href="https://www.raconteur.net/finance/financial-inclusion-banked">piece</a>, Rhyne’s insights are part of a broad survey of the global financial inclusion landscape -- from barriers to financial inclusion in the developing world, to its benefits and the tools that are helping to integrate marginalized populations into the “financial mainstream.”
“In the developing world there is an issue of absolute low incomes,” Rhyne said in the feature, which appeared in the <a href="https://www.raconteur.net/future-money-2019">Future of Money</a>, a 20-page insert published in <a href="http://www.thetimes.co.uk">The Times (UK)</a> in association with <a href="https://europe.money2020.com/">Money 20/20</a>. “In regards to how much in deposits people would be providing, how large a credit they might want, these are below the threshold of feasibility for banks using traditional branch-based, teller-based models. So you couldn’t put a branch out in a rural area and expect it to be profitable.”
Rhyne uses the example of hyperinflation in Latin America to illustrate why potential customers don't have bank accounts, and concludes the article by noting that digital payments “are going to be essential” over the next decade.

<a href="https://www.raconteur.net/">Raconteur</a> is a publisher of “special-interest content and research” whose special reports are inserted into the printed version of The Times (UK). Read the full article <a href="https://www.raconteur.net/finance/financial-inclusion-banked">here</a>.

Raconteur Features Elisabeth Rhyne in “Challenges in Banking the Unbanked”

Latin America and The Caribbean

Appropriate Product Design and Delivery

Credit

Digital Financial Services

Fintechs

Mobile Banking

Saving

News

What would you do with an extra $500 a month?

Mayor Michael Tubbs of Stockton, California, posed this question to his constituents last year. In February, the city began its 18-month universal basic income (UBI) pilot. Through a privately-funded program, Stockton’s government will distribute <a href="https://www.huffpost.com/entry/stockton-california-universal-basic-income_n_5c697700e4b05c889d20203a">$500 on a monthly basis</a> (the first $500, pre-paid debit cards have been sent), no strings attached, to 130 of its low-income residents. <a href="https://www.ycombinator.com/about/">Y Combinator</a>, a California-based startup accelerator, plans to launch a similar trial this year in Oakland.

Tubbs knew there would be obstacles in getting this pilot off the ground; he would have to convince people across the political spectrum that it was a good idea. However, there was one segment he did not expect push back from: the people the program intended to help.

“There were conversations I had with folks who are one paycheck away from deprivation saying, ‘We don’t deserve anything,’ so really the challenge has been reshaping the conversation. This is not a handout. This is part of what you get as a citizen of Stockton. You are eligible for this not because you need anything, but because you are a citizen of this city, ” Tubbs explained in an <a href="https://iop.harvard.edu/forum/stockton%E2%80%99s-economic-empowerment-demonstration-guaranteed-income-initiative">interview</a> last year. He hopes that this program will empower people to have more agency.
<h2>Differences Between Stockton's UBI Pilot and Others</h2>
A UBI pilot like this has never been done in the U.S. before, so it’s difficult to hypothesize how the Stockton trial will turn out. While most pilots focus on the quantitative data – how funds are spent, whether employment rates changed, and the like – the Stockton pilot aims to <a href="https://basicincomepodcast.com/podcast/updates-stockton-basic-income-trial-feat-mayor-michael-tubbs-lori-ospina/">humanize the results</a>. Through surveys, qualitative interviews, and local artists, the city intends to engage participants more deeply and stimulate discussion more broadly.
<blockquote>Humanizing the results: Stockton's universal basic income pilot participants will be engaged deeply and stimulated by discussion.</blockquote>
Finland recently ended a <a href="https://www.nytimes.com/2018/05/02/opinion/universal-basic-income-finland.html">two-year trial</a> that awarded 2,000 Finns roughly $630 per month, but that was targeted exclusively at the unemployed.

The fact that it targeted exclusively the unemployed is important for a couple of reasons. First, it didn’t teach us how people who have a source of income, especially on the low or irregular end, would treat this extra funding. Second, the Finnish government changed its unemployment laws concurrently with the pilot such that if you could not prove you were actively seeking a job, you lost your government benefits. In the first three months, <a href="https://yle.fi/uutiset/osasto/news/finlands_activation_model_brings_benefit_cuts_for_94000_people/10145894">94,000 Finns saw their benefits cut</a>.

UBI is not meant to be contingent, and cutting other benefits shifts the financial liability for things like health care back to the individual. In many ways it’s similar to Clinton’s <a href="https://aspe.hhs.gov/report/personal-responsibility-and-work-opportunity-reconciliation-act-1996">Personal Responsibility and Work Opportunity Reconciliation Act</a>: among other things, it forces the unemployed to accept gig work, and businesses can lower wages because people have to accept a job or risk losing benefits.

The closest thing we’ve seen to a large-scale UBI is the Alaska Permanent Fund, which has been active since 1982. The fund receives most of its capital from the revenue of oil companies operating within the state; each year, payments of equal amounts are distributed to all Alaskan residents (generally between $1,000 and $3,000). A 2018 report found that this cash transfer program <a href="https://www.nber.org/papers/w24312.pdf">did not significantly decrease employment</a>. However, as climate change issues surge, there are growing concerns regarding the source of revenue of the fund. While some board members <a href="https://www.juneauempire.com/news/what-does-the-alaska-permanent-fund-have-to-do-with-climate-change-this-group-will-tell-you/">attempt to downplay</a> the percent of the portfolio invested in fossil fuels, its former Chair William Moran <a href="https://www.adn.com/opinions/2018/05/24/how-alaska-permanent-fund-investment-policies-fail-to-consider-the-changing-world/">noted</a> last year that “every last cent of the $65 billion initiative is a financial derivative of fossil fuel interests. ” This sends a message that if the price is right, oil companies can buy their way into operation.

The United States already has an antipoverty cash distribution program called the Earned Income Tax Credit (EITC), which is designed to support low-income Americans. The program differs from the UBI concept in several important ways, however. It primarily supports people with children, rather than focusing on individuals. The disbursal amount varies each year, and it is only distributed once a year. This means that recipients never know how much they will receive, and often spend it on overdue expenses. <a href="https://www.nytimes.com/2012/04/17/us/antipoverty-tax-program-offers-relief-though-temporary.html?hp">Critics argue</a> the lump sum would be more effective if dispensed in installments.

Given that less than 10 percent of the EITC payout goes into savings account, this points to the critical problem that people still can't survive on working wages alone. Research by economist Alan Krueger shows that <a href="https://qz.com/851066/almost-all-the-10-million-jobs-created-since-2005-are-temporary/">nearly all jobs created since the recession have been contract, part time, or contingent</a>. These types of jobs don’t provide the same benefits as a 40-hour per week role, and it is increasingly <a href="https://scholar.harvard.edu/files/lkatz/files/katz_krueger_cws_v3.pdf">less likely that your job will provide the security</a> that it did 20 years ago. Some of the most successful companies in the past decade,<a href="https://slate.com/business/2018/12/google-walkout-protests-contract-workers.html"> including Google</a>, contract more than half of their staff. In combination with the rising concern of job loss to automation, UBI could be an insurance policy for future downturns that require workers to accept less stable short-term or gig positions, especially for those who have dependents, less varied skillsets, or otherwise require a degree of employment stability.
<h2>Beyond Income: Work Isn’t Just Monetarily Rewarding</h2>
Some scoff at the idea of UBI, deeming it welfare for those too lazy to work and believing it would lead to workforce gaps. However, according to the Economic Policy Institute, nearly <a href="https://www.epi.org/publication/poor-people-work-a-majority-of-poor-people-who-can-work-do/">63 percent of poor people in the U.S. who are eligible to work are currently employed</a> full or part time, and many of those who aren’t – about 3.3 million – are actively seeking employment. Furthermore, work is generally not just about a paycheck; unemployment is enormously traumatic, and studies have shown that people <a href="https://harris.uchicago.edu/news-events/news/universal-basic-income-policies-dont-cause-people-leave-workforce-study-finds">find purpose in work</a>. When it comes to poverty, a willingness to work is not the problem, but rather that work itself is no longer the solution. The next big economic idea will have to consider a myriad of factors – from increasing digitization to the ever-expanding wealth gap – to push for a more economically-inclusive society.

The idea of universal basic income isn't just about social justice – it's about stimulating economic growth. The United States <a href="http://inequalityforall.com/wp-content/uploads/2014/12/A_Visual_StoryPDF.pdf">prospers most</a> when it has a healthy middle class; in 1940, it was almost guaranteed that a child would grow up to have a higher income than his or her parents. By the mid-1980s, that probability was <a href="https://www.brookings.edu/blog/up-front/2018/07/25/fewer-americans-are-making-more-than-their-parents-did-especially-if-they-grew-up-in-the-middle-class/">down by about half</a>. When those who have less do better, <a href="https://www.americanprogressaction.org/issues/poverty/news/2011/12/06/10771/10-reasons-why-cutting-poverty-is-good-for-our-nation/">everyone benefits</a>: health costs go down, innovation goes up, and social mobility improves.
<blockquote>Universal basic income isn't just about social justice – it's about stimulating economic growth.</blockquote>
While UBI alone is not a panacea for economic inequality, its time has come as a force for serious and meaningful economic prosperity, and a counter to the ballooning inequality from which the U.S. suffers.

Work Isn’t Just About Money: Universal Basic Income and Potential Benefits for U.S. Working Poor

North America

United States

Financial Capability

Payments

Personal Financial Management

In the 2018 Global Microscope rankings of countries whose institutional and policy environments support financial inclusion, there is one newcomer among the prized top five: Uruguay checks in as third in the overall rankings. Only a few years ago – in 2014 – Uruguay languished in fourteenth place.

Changes in both Uruguay and the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> itself account for this rapid jump. Uruguay is energetically implementing a financial inclusion playbook that seems to be taken directly from the 2018 Microscope’s increased focus on digital transformation. Since some of my favorite places and some of my favorite people are in Uruguay, I’m happy to have a chance to spotlight this small country that lately seems to be getting everything right.

Uruguay’s advance in financial inclusion exemplifies what a government-led approach can do if it is in sync with local capabilities. The government took a major step in 2014 when its new Law on Financial Inclusion strongly promoted a shift in the economy to digital payments. Among provisions too numerous to list here, two transformational measures stand out: first, the law requires employers to pay salaries electronically into accounts (to have been accomplished by mid-2017). Even gauchos working on cattle ranches are paid that way – or at least that’s what’s supposed to have happened.

Second, the law incentivizes the use of debit and credit cards through a 2 percent reduction in VAT (sales tax) for card-based purchases. With those changes in place, the average Uruguayan employee now receives money into an account and has a good reason to pay for things with a card associated with that account. These changes put Uruguayans well on the path toward a cash-light economy.

It’s not popular among everyone, however. “I’m fed up with this financial inclusion stuff,” complained my friend Mark. “I can’t buy gas at night anymore. The gas stations won’t accept cash.”

“What about using your credit card?” I asked him.

“I don’t trust the gas stations, so I’m not going to hand them my credit card,” he replied. Rather than switching, he simply stopped buying gas in the evening.

But even getting cash can be a problem. So many ATM robberies have taken place that the banks put less cash in them. “You have to go to the cash machine right after it has been filled,” he says.

Not all Uruguayans are as stubborn about cash as Mark. In fact, the Global Findex records that account ownership among adults there rose from 24 percent in 2011 to 64 percent in 2017, and the percent of people making or receiving electronic payments rose from 37 percent in 2014 to 59 percent in 2017.

Uruguay’s ability to make dramatic leaps is predicated on a number of enabling conditions that make the policy shifts actionable. The country already had widespread identification cards, well-functioning credit bureaus, and ubiquitous cellular connectivity. In one sense the digital financial inclusion push can be seen as a part of a larger digital drive covering realms from communications to education to finance. And in the private sector, the shift is enabled by a lively marketplace of software and fintech firms, some of which have organized into the Chamber of Fintech for dialogue with government. Government encourages innovation through test and learn approaches to regulation, and by avoiding placing barriers on the types of organizations that can enter the digital finance arena.

The Uruguayan approach to financial inclusion is focused on driving cash out of the system, more, perhaps than on actually extending financial services to the previously excluded. In the Microscope ratings, Uruguay’s lowest scores are on consumer protection, and the Findex results reveal a fairly significant gap in the inclusion of lower income people as well as a rural-urban divide. Most of the ranch hands on Mark’s farm cash out their earnings immediately to use cash in the local shops, so inclusion hasn’t yet become meaningful for them.

Uruguay’s experience underscores the need for the policy environment to mesh with the existing opportunities in the private sector. If policy gets out too far ahead of the private sector, even the most far-sighted policy may elicit little response from service providers. But as Chris Skinner argued in one of CFI’s <a href="https://www.centerforfinancialinclusion.org/series/getting-inclusion-right">10 Essays for 10 Years on Getting Inclusion Right</a>, when policy provides a well-conceived nudge that harmonizes with pre-conditions in the market, rapid change can follow. Hats off to Uruguay for putting it all together and to the Microscope for documenting the progress.

Uruguay Leaps 9 Spots in the Global Microscope Rankings

Uruguay

Global Microscope

Policy, Regulation and Government Initiatives

The Global Microscope is a benchmarking index that assesses the enabling environment for financial inclusion in 55 countries. Now in its 11th year, the Microscope is the global standard for financial inclusion policy in developing economies. The 2018 Global Microscope on Financial Inclusion, with a revised research framework, offers a forward-looking focus on the digital financial services now and in the future, and the critical role for financial inclusion envisioned in the Sustainable Development Goals.

The 2018 Global Microscope sets a model for an enabling environment for financial inclusion across five domains: government and policy support, stability and integrity, products and outlets, consumer protection, and infrastructure. The Microscope evaluates the regulatory and policy environment for key players in the financial inclusion space including banks, non-bank financial institutions, e-money issuers and cross-border payment providers. It also focuses on the role of inclusive insurance, financial agents, financial technology (fintech) firms, and credit information providers.

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organizations in the field, including CFI.

&nbsp;

Global Microscope 2018: The Enabling Environment for Financial Inclusion and the Expansion of Digital Financial Services

Consumer Protection

Trends

Report

Webinar: Digital Identity for Financial Inclusion

Webinar

This post originally appeared on <a href="https://nextbillion.net/is-financial-inclusion-stalling-the-2017-findex-results/">Next Billion's blog</a> and is reposted here with permission.

<img class=" size-full wp-image-25657 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-cover_fig.png" alt="geographic distribution of 3 billion people without active accounts, 2017" width="2300" height="2325" />
About 3 billion people in the world either have no account or have an account that sits unused. The countries with the largest number of financially excluded people are also the highest population countries: India and China. This picture has changed little in the past three years.
The Global Financial Inclusion Database (Findex) is a survey of the financial habits of adults in 144 countries with data from 2011, 2014 and now (2017). Governments, foundations, big financial companies and fintechs alike rely on the Findex to understand how people are using (or not using) financial services. It is the best available yardstick through which we measure global progress toward financial inclusion.
<h3>A Misleading Findex Headline</h3>
Unfortunately – as we share in our recent report, <a href="http://www.centerforfinancialinclusion.org/storage/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results.pdf" target="_blank" rel="noopener">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a> – while we see a few bright spots, the overall results in the latest survey are decidedly less exciting than they were in 2014. The World Bank, which houses the Findex, announced the 2017 results with the headline that 69 percent of the world’s adults now have bank or mobile money accounts – which represents good progress toward its target of “<a href="http://www.worldbank.org/en/topic/financialinclusion/brief/achieving-universal-financial-access-by-2020" target="_blank" rel="noopener">Universal Financial Access” by 2020</a>. We agree that connecting hundreds of millions of people to the formal financial system is worth celebrating: If nothing else, it serves as heartening evidence that a sustained movement involving the private and public sectors in nearly every country can meet an important global challenge.

But that headline is deeply misleading, for two reasons. First, and somewhat embarrassingly, many new accounts are simply dormant. The accounts of a fifth of reported account-holders have had zero activity in over a year – no deposits and no withdrawals. If a small shop owner has a bank account but does not use it, the account is valueless to her and a burden to the financial service provider that invested in technology, staff and infrastructure to serve her. It’s wasteful.

<img class=" size-full wp-image-25655 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig03.png" alt="Graph of percentage of account-holding population with an inactive account, 2017" width="1370" height="1746" />
In 29 countries, more than one in five people have an account but have not used it in the past year. Inactivity has increased in the past few years.

India accounts for the greatest number of these dormant accounts. In 2014, Prime Minister Modi launched the Pradhan Mantri Jan Dhan Yojana (Prime Minister’s People’s Money Scheme), which required banks to open millions of new accounts. The Guinness Book of World Records recognized the effort when <a href="http://www.guinnessworldrecords.com/news/2015/1/india-makes-financial-world-record-as-millions-open-new-bank-accounts" target="_blank" rel="noopener">a staggering 18 million bank accounts</a> were opened in a single week. This campaign and many related Indian government efforts show up clearly in some of the Findex results. Bank account ownership in India more than doubled since Findex began in 2011. But more than a third of those accounts appear to be idle, even using the very soft definition of “active” as one transaction in a year.
<h3>Sobering Financial Inclusion Stats in Emerging and Frontier Markets</h3>
Beyond the positive headlines, the data raise some issues: First, focusing only on active accounts, the number to remember is that across the developing world, only 48 percent of adults have accounts, whether at a financial institution or mobile money provider. But the second problem with the World Bank’s positive Findex spin is even more important than slow growth in active accounts. Savings and credit are at least as important as accounts when it comes to indicators of financial inclusion. But little or no progress is apparent in either. More precisely, since 2014, in the developing world as a whole, savings is down and credit is flat.

<img class=" size-full wp-image-25656 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/cfi_2017findex_final-fig06.png" alt="Graph of saving, borrowing, and digital payments, 2011-2017 (developing countries)" width="2300" height="1446" />

Credit is flat, and savings is declining, even as digital payments make significant gains.

Take savings, a stepping stone to better financial health. If access to accounts is making a difference in the lives of the newly included, this should show up in more people saving. Instead, the fraction of people who saved through a formal account – 20 percent – was slightly lower than the 22 percent reported in 2014. The segment saving for retirement fell to a very low 15 percent in 2017, worrisome indeed as the global population ages.

On the credit side, the number of people borrowing from a financial institution increased very slightly in the past three years. However, the data do not provide evidence that the new and much-lauded forms of digitally delivered and big-data-based credit have substantially boosted access. Fintech innovations using algorithms, machine learning and artificial intelligence for credit scoring may revolutionize access to small loans, but as of 2017, either they are simply transforming the way credit is provided to existing groups, or they have not yet achieved transformative scale.

The lack of progress on savings and credit could help explain why the Findex responses to the question on financial resilience – whether a person can quickly come up with money needed for an emergency – also failed to show improvement.
<h3>Looking on the Bright Side</h3>
Findex results offer one important bright spot: digital payments. We are witnessing an enormous transformation in the infrastructure of banking, as more people use digital payments to send and receive money and to buy goods and services. In the developing world, 44 percent of the people surveyed had used digital payments in the past year, up solidly from 32 percent in 2014. All kinds of digital use cases are increasing, from online purchases and direct deposit of salaries to paying utility bills through an account. There is a clear and convincing trend – even if there is also a long way to go before the developing world reaches the degree of digitization common in high-income countries, where 91 percent have made such payments.

The emerging digital infrastructure may one day support the financial well-being of most of the world’s people. But we’re not there yet. The latest Findex results set the stage for the financial inclusion community to reflect and reconsider its assumptions so that everyone working in this field can better ensure that access to accounts and payments translates into active use and benefit for the 3 billion financially underserved people around the world.

&nbsp;

&nbsp;

Is Financial Inclusion Stalling? The 2017 Findex Results Raise Several Red Flags

Global Findex

Delivery Channels

<div class="getty embed image">

Financial inclusion momentum has slowed in the past three years, the 2017 Global Findex revealed. The financial inclusion community may wish to reflect on these results, recalibrate expectations, and then re-engage.

In a <a href="http://bit.ly/DeconstructFindex">new report</a>, the Center for Financial Inclusion at Accion journeys through the 2017 Global Findex data recently released by the World Bank, which assess progress toward financial inclusion on the basis of a 150-country study conducted by Gallup. We examined the 2017 Findex data from our own perspective, and although we found some good news, there are also some concerning trends.

In recent years, the headline for financial inclusion has been the percentage of adults in the world with accounts (either financial institution or mobile-based). That number has grown since 2014 to 69 percent – good news. But we believe it is more relevant, if less encouraging, to focus on the number of adults with active accounts, that is, accounts they have used at least once in the past year. That number is 55 percent, representing a net gain of 280 million active accounts between 2014 and 2017, a much more modest gain than the nearly 700 million total new accounts added in the previous three years (2011-2014).

Looking specifically at the developing world and correcting for account dormancy, only 48 percent of adults in developing countries have active accounts – disappointingly, participation remains below half. Overall, account growth has slowed, and at the same time the access-usage gap has grown.

[caption id="attachment_25628" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/account-ownership.png"><img class="wp-image-25628" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/account-ownership.png" alt="" width="615" height="382" /></a> (click to enlarge)[/caption]

Moreover, these new accounts have not resulted in greater availability of credit or greater incidence of savings. Savings has dropped slightly in many countries in the past three years – and that includes both saving in any form and saving in financial institutions. In developing countries as a whole, about 20 percent of the adult population saves in financial institutions. Credit is essentially flat at 15 percent of the adult population, which may be a surprise for some who have watched with anticipation the rise of fintech-enabled digital credit using alternative data and algorithms. These new forms of credit will need to scale a great deal more before they can make a significant difference in the big picture of financial inclusion.

[caption id="attachment_25624" align="aligncenter" width="616"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/borrowing-activity.png"><img class="wp-image-25624" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/borrowing-activity.png" alt="" width="616" height="382" /></a> (click to enlarge)[/caption]

Financial inclusion promises to provide people with more options and tools to manage their day-to-day funds, respond to emergencies, and seize opportunities. The Findex survey asked whether people believe they can come up with funds in case of emergency. In developing countries, however, responses were slightly less positive in 2017 than in 2014. Asked whether they could come up with 1/20 GNI per capita in a month, only about 50 percent of people in developing countries said it was possible—down 8 percentage points from the 2014 survey.

In short, a full suite of quality financial services that supports financial well-being is still a distant dream for more than half of the developing world.

The bright spot, however, involves greater use of digital payments. Many more people in the developing world have been involved in a digital transaction in the past year than ever before. In developing countries, an additional 12 percent of adults reported having made a digital payment in the last year. Of wage recipients in developing countries, about half received wages into an account in the past year, and 21 percent of people in developing countries purchase things and pay bills using mobile phones or the internet. Mobile accounts are connecting people to financial services all across Africa and in a handful of other countries, and at the same time in other regions, more people are using mobile phones to access their financial institution accounts.

[caption id="attachment_25625" align="aligncenter" width="615"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/payments.png"><img class="wp-image-25625" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/05/payments.png" alt="" width="615" height="380" /></a> (click to enlarge)[/caption]

Despite the growth of digital payments, the Findex 2017 results overall are sobering. Financial inclusion, while further away than expected, is still an achievable goal. It requires considerable thought and engagement from all industry stakeholders to ensure that inclusion will create active usage and meaningful change in the lives of consumers. We hope the financial inclusion community will use the 2017 results to engage in a serious conversation about how financial inclusion initiatives are affecting usage, products and financial well-being, and then to re-engage with eyes open as we continue pursuing the important tasks at hand.

For more analysis on these and other areas of financial inclusion, read the new report, <a href="http://bit.ly/DeconstructFindex">Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results</a>.

Have you read?

<a href="https://cfi-blog.org/2018/04/19/new-global-findex-sixty-nine-percent-of-global-population-is-banked/">New Global Findex: Sixty-Nine Percent of Global Population Is Banked</a>

<a href="https://cfi-blog.org/2018/04/25/findex-and-financial-health-in-eastern-europe-and-central-asia/">Findex and Financial Health in Eastern Europe and Central Asia</a>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion – Beyond Account Access</a>

</div>
&nbsp;

&nbsp;

&nbsp;

Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results

Around the world today, financial service providers, technology entrepreneurs and policy makers are engaged in building a financial system that reaches out to previously excluded people, such as lower income people, very small businesses, rural dwellers, and women. Although this work is carried out in the name of the consumer, all too often, scant attention is paid to the real needs and desires consumers and very small enterprise owners have.

With that in mind, here is a thought experiment. A thought experiment is an “exercise of the imagination used to investigate the nature of things.” The question for this experiment is this:

Imagine that consumers were the creators of the inclusive finance system. What would such a system look like?

What characteristics would emerge if the needs, desires and preferences of the target customers of financial inclusion were the driving force to shape their services? The observations here are drawn from consumer research conducted or commissioned by the Center for Financial Inclusion at Accion, including research in <a href="http://smartcampaign.org/tools-a-resources/1087">Peru</a>, <a href="http://smartcampaign.org/tools-a-resources/1077">Pakistan</a>, <a href="http://smartcampaign.org/tools-a-resources/1088">Georgia</a> and <a href="http://smartcampaign.org/tools-a-resources/1076">Benin</a> for the <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voice project</a> of the <a href="http://smartcampaign.org/">Smart Campaign</a>, in Kenya and India for <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/807-beyond-financial-inclusion-financial-health-as-a-global-framework">our project on financial health</a>, in <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/financial-capability-building-practices-in-india-final.pdf">India</a> and <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/financial-capability-building-practices-in-mexico-final.pdf">Mexico</a> for <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">our study of financial capability</a>, and again in <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/782">Kenya</a> and <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/781">India</a> for two CFI Fellows’ projects on the role of human touch in the digital age. I offer ten propositions based on this research.

If inclusive finance were created by consumers…
<ol>
 	<li> The ultimate goal of financial inclusion would be the financial health of consumers (and their small businesses). When we talk to consumers about their financial strategies, we find everyone striving to be financially healthy. Their concepts of financial health are surprisingly similar whether they are small farmers in rural Kenya or young salaried workers in the United States. They define financial health on three dimensions:</li>
</ol>
<ul>
 	<li>Daily systems that work smoothly</li>
 	<li>The ability to protect themselves financially when shocks occur</li>
 	<li>The ability to build for the future</li>
</ul>
In a system designed by consumers, financial services would be intended specifically to assist in the pursuit of financial health.
<ol start="2">
 	<li> Products would be convenient and quick. No one wants to spend time and money traveling to a bank branch and standing in line. Mobile financial services are bringing ubiquitous 24/7 access to financial services, and this is certainly something consumers are happy about.</li>
 	<li> Products would be simple and easy to understand. They would not come with hidden terms and conditions, exclusions or confusing prices. Electronic interfaces would be easy to use. Simplicity and transparency in product design enables consumers to use products appropriately and builds trust.</li>
 	<li> Consumers could talk to a person when they need to. Our research in Kenya shows that after almost a decade of M-Pesa, consumers there are very comfortable conducting transactions digitally. But when they are considering whether to take up a new service, learning how the service works and especially when something goes wrong, they would strongly prefer to talk to a person face-to-face.</li>
 	<li> Their ‘better selves’ would be supported and strengthened. Customers want to use services in constructive ways, but sometimes temptation gets in the way or they simply forget. As behavioral economists have learned, products like commitment savings can help them maintain savings discipline. On the other hand, aggressive marketing can lure them into financial decisions they may later regret.</li>
 	<li> Their savings would be safe. This encompasses both the safety and soundness of financial institutions and appropriate risk levels for investment products.</li>
 	<li> They would have insurance to protect them when they meet crises. Research shows that health crises are the most frequent and important type of crisis that affect lower income families. Other forms of protection would include life (especially for the main income earners in a family), property, crop and accident insurance.</li>
 	<li> They would have saving and loan services that would help them achieve their most important life goals. The ‘big four’ lifetime goals that are often the core of a person’s financial life include: education for themselves and their children, business growth (for those so employed), shelter and shelter improvements, and a secure old age.</li>
 	<li> They would be protected from frauds and scams. Our research shows that low income people are continually exposed to frauds and scams. They need to be able to tell good players from bad ones, and they need to be sure that money entrusted to a good player will not be lost through security breaches.</li>
 	<li> Their interactions with formal financial services would help them gain a sense of confidence and control in their financial lives. If all the above conditions are met, consumers would gain confidence and control and would relieve the stress that often accompanies money management.</li>
</ol>
This thought experiment reveals valuable elements of a financial inclusion system that would give consumers what they need and want. Now, let’s move back to reality. How well is the global financial inclusion system performing on these ten dimensions? That depends on where you look, and perhaps on your point of view. Here is my attempt at a scorecard, reflecting both what we have heard from consumers and my own opinion.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/scorecard1.png"><img class="wp-image-24154 aligncenter" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/scorecard1.png" alt="" width="615" height="615" /></a>

Excitement in the financial inclusion community focuses on fast and convenient access, especially for transactions and short term financial needs. However, far too little attention is paid to making the financial systems a safe place in which consumers can feel confident and that they can use to build their financial health. It would not be hard to do better in these areas. A first step is for institutions to invest more in listening to consumers and responding to what they hear.

Have you read?

<a href="https://cfi-blog.org/2017/03/29/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans</a>

<a href="https://cfi-blog.org/2016/05/06/a-change-in-behavior-innovations-in-financial-capability-an-interview-with-elisabeth-rhyne/">A Change in Behavior: Innovations in Financial Capability - An Interview with Elisabeth Rhyne</a>

<a href="https://cfi-blog.org/2016/03/31/client-voices-at-the-georgian-parliament/">"Client Voices" at the Georgian Parliament</a>

&nbsp;

&nbsp;

&nbsp;

Financial Inclusion From a Consumer Perspective

CFI Research Fellows Program

Financial Inclusion 2020

The Smart Campaign

Customer Centricity

Financial Health

Human Centered Design

Underserved Groups

WeBank started piloting facial recognition for KYC (“know your customer”—verifying that a customer is who they say they are) last year—we heard about it when we talked with Jared Shu, a partner with McKinsey, as part of our <a href="http://www.centerforfinancialinclusion.org/storage/documents/IIF_CFI_Report_FINAL.pdf">deep dive about the different ways banks pursue financial inclusion</a>. At that point, the technology was mere possibility, with some question about whether the regulator would allow it. Now, it seems, facial recognition is indeed serving as a form of identity in China. With the help of technology, customers can quite literally authorize a transaction <a href="https://www.technologyreview.com/s/603494/10-breakthrough-technologies-2017-paying-with-your-face/">using their face</a>.

Alipay, a mobile payment app launched by Alibaba in 2004 and used by 120 million people in China, is partnering with Face++ (pronounced “face plus plus”) to allow people to use their face as a credential to make payments. The technology is a natural extension of using a fingerprint to verify a person’s identity, and it is far more secure than just comparing a signature on the back of a credit card to a signature on a receipt.

Software can distinguish between faces far better than humans can. You may have noticed this when you uploaded photos to social media like Facebook and the platform suggested names for the faces in your photos. Face++ uses 83 different points on the human face to verify a person, assigning a measure to the distance between each of the points. It is this combination of distances that verifies identity. The technology’s use cases go beyond the financial system to unlocking doors (literal ones—as in you don’t carry a key any longer), tracking down criminals, or verifying Uber drivers/riders. A scenario is even possible in which a customer walks into a store and receives a personalized experience based on their previous spending—just like Tom Cruise gets to enjoy in “Minority Report.”

While I am slightly disturbed by some of the implications of corporations having a searchable image of my face on their servers, I am optimistic about the possibilities that this technology offers. Open a bank account by holding up your iPad to your face! Split a cab fare by holding a smartphone to your friend’s face! Send money for your niece’s birthday using voice recognition technology even while you’re stuck on the bus! More convenience in my financial services? Yes, please.

However, everything I have read about this technology is just that—a push for convenience to make transactions easier for existing customers. Nowhere am I reading about increasing access to people who aren’t carrying high definition cameras in their pockets or rucksack. The big news should be small microfinance institutions in the Democratic Republic of the Congo equipping their staff with iPads that will enable them to solve the problem of the majority of the population not having a government-issued id. We should be hearing about some of the problems of de-risking solved by the possibility of a reliable and robust technology that verifies identity through a means that people aren’t likely to lose when their wallet gets stolen.

Why are we not hearing about the application of this technology for low income populations? This is not a rhetorical question—I truly want to know. Is it that the technology is too expensive? Too experimental? Doesn’t fit squarely within regulatory requirements? I would love to hear your thoughts in the comments below if you have any.

Creative ways of solving the identity problem are exciting and present new possibilities for financial inclusion. I will be anxiously watching this space to see how these new possibilities are translated into creating a more enabling environment to include more low income and vulnerable customers into the financial system.

Have you read?

<a href="https://cfi-blog.org/2016/09/08/the-new-wave-of-partnership-models-between-banks-and-fintech-startups/">The New Wave of Partnership Models Between Banks and Fintech Startups</a>

<a href="https://cfi-blog.org/2017/01/05/the-news-from-china-can-a-speeding-ticket-hurt-your-credit-score/">The News from China: Can a Speeding Ticket Hurt Your Credit Score?</a>

<a href="https://cfi-blog.org/2015/09/08/new-case-study-provides-evidence-on-the-impact-of-digital-field-applications/">New Case Study Provides Evidence on the Impact of Digital Field Applications</a>

&nbsp;

Sign Here, And Put Your Face Here

Risk Management

Social Performance

Elisabeth Rhyne

Managing Director

Mayada El-Zoghbi'ff "Quotes"

Rachel Morpeth

Sonja Kelly

Bhutan

In 2014, the Royal Monetary Authority of Bhutan (RMA), the country’s central bank, made a commitment under the Alliance for Financial Inclusion’s <a href="http://www.afi-global.org/publications/2359/The-2016-Maya-Declaration-Report">Maya Declaration</a> to develop a national financial inclusion strategy. It backed the overall pledge with specific commitments detailing the main pieces of the strategy. Since then, it has diligently put these pieces into place. Over the past three years, the RMA created regulations for microfinance organizations (deposit-taking and non-deposit taking) and agent banking. It set up a mobile payments system, a credit bureau and a collateral registry. This is an impressive set of accomplishments for a country starting from a relatively blank slate in these areas.

But is it enough? I wonder whether these initiatives will spark the provision of financial services that contribute to the inclusive economic growth Bhutan is seeking.

Bhutan is a special place – a hidden Himalayan kingdom sometimes called a Shangri-La. It is a mountainous country with only 800,000 people scattered across hills and along narrow valleys. Only 7 percent of Bhutan’s land is arable – the rest is too steep. And yet, according to the <a href="http://www.baowe.org/">Bhutan Association of Women Entrepreneurs</a>, a local NGO, the livelihoods of 80 percent of the population depend on agriculture. Bhutan is dwarfed by neighbors with enormous populations: India, on which it depends heavily, Bangladesh and China. Even Nepal has more than 20 times more people. At the recent <a href="http://www.centerforfinancialinclusion.org/events-a-presentations/857-befit-international-financial-inclusion-summit">BEFIT financial inclusion summit</a>, representatives from the region came to share their experiences. But if your experience is all about building for scale – as, for example, with the 15 million clients of India’s Bandhan Bank – what advice do you have for tiny Bhutan? If your rural areas are very densely populated – as in Bangladesh – what can you conclude about reaching the widely dispersed rural dwellers in Bhutan? Ironically, the best point of reference for Bhutan might be the small Pacific Island nations whose people drift across dozens of islands, or Bolivia – another mountainous country surrounded by larger neighbors.

The most obvious first challenge for Bhutan is to reach people across distances, and that is why it has been a priority to introduce agent banking. I think everyone recognizes that mobile phones will be key to universal coverage, and, indeed, 86 percent of people in Bhutan have a mobile phone. The RMA will need to continue working with the telecoms regulators toward full mobile penetration and high bandwidth coverage that will support mobile financial services across the country. Meanwhile, and for at least the next several years, banking agents will be essential for creating localized access. The RMA is seeking ways to ensure that agents operate responsibly across the country.

In my own vision of a financially inclusive Bhutan, I see savings and credit groups spreading across the country and linking to banks via mobile phones and banking agents. It strikes me that promoting savings groups and pairing them with mobile banking is potentially the most powerful financial inclusion strategy Bhutan can adopt. I say this in large part because the sparse population and rugged terrain will make it difficult, if not impossible, for a traditional microlender operating outside the main cities to be financially viable, even with mobile banking, whereas savings groups can continue to operate long after the initial start-up subsidies. This appears to be playing itself out in the experience of <a href="http://renew.org.bt/">RENEW</a>, a German-backed microlender offering a Grameen Bank-style group loans. While RENEW is the largest microfinance institution and undoubtedly well-run, its prospects for financial viability remain elusive. Unfortunately, the savings and credit group methodology, which has been so successfully promoted across Africa by Care, Oxfam, and others, is not known in Bhutan, and even the Indian self-help group experience seems under-represented. There are only a few very small cooperatively-owned savings and credit groups in the country. Introducing this methodology in Bhutan could well be a major step forward. It would require an acknowledgement by the RMA that informally-based financial services can be beneficial – a concept that is currently somewhat equivocal, evidenced by a government effort to crack down on informal moneylenders.

[caption id="attachment_23720" align="aligncenter" width="620"]<img class="wp-image-23720" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/06/bhutan_2.jpg" alt="Royal Monetary Authority staff" width="620" height="430" /> Royal Monetary Authority staff take a break[/caption]

The policy makers in Bhutan are interested in financial inclusion primarily as an inclusive growth strategy, which is why the legislators and cabinet ministers who attended BEFIT were especially focused on financial inclusion helping small businesses – or in local parlance, cottage and small industries (CSIs). The Bhutanese I spoke with were especially concerned about youth unemployment and the perceived lack of entrepreneurship – “The young just want to be tour guides or civil servants.”  This is why one of the government’s financial inclusion initiatives was to set up a no-interest revolving loan fund that lends only to start-up projects. While inspired by the best of motives, my sense is that such lending to new projects is ill-advised, not only because it requires heavy ongoing subsidy, but also because it is not necessarily a favor to young first-time entrepreneurs, who are highly susceptible to failure. Business failure combined with debt can bring on significant negative consequences; shared equity may be a better approach. Debt is more appropriate for the more established businesses targeted under a new private investment fund, the Bhutan Fund, now in formation. The Bhutan Fund seeks to develop export businesses, such as horticulture, that can feed into the enormous markets just beyond Bhutan’s borders. However, for most CSIs, the existing microfinance program, RENEW, possibly combined with expertise from an experienced microlender that provides individual loans, such as those from Bolivia, would be a more accessible approach.

Bhutan’s financial system is, understandably, very small – consisting of five banks, two insurance companies, a pension fund and three microfinance institutions (only one of which has any scale). The advantage of having a small system is that the central bank can work together with the financial system to implement good ideas quickly. We see the fruits of that kind of cooperation already in the progress Bhutan has made on its Maya commitments.

The leaders of Bhutan’s government, central bank and major financial institutions are determined to continue advancing financial inclusion. It will be fascinating to watch them select the best and most relevant concepts from around the world and come out with a system that is uniquely their own.

Image credits: Elisabeth Rhyne

Have you read?

<a href="https://cfi-blog.org/2017/06/01/seeking-happiness-and-financial-health-in-bhutan/">Seeking Happiness and Financial Health in Bhutan</a>

<a href="https://cfi-blog.org/2016/07/01/mexico-launches-comprehensive-financial-inclusion-strategy/">Mexico Launches Comprehensive Financial Inclusion Strategy</a>

<a href="https://cfi-blog.org/2016/10/26/new-report-highlights-gains-in-financial-inclusion-led-by-india-digitization-on-the-rise/">2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise</a>

&nbsp;

&nbsp;

Finding a Bhutanese Path to Financial Inclusion

Virginia Moore

Colombia

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

India

Peru

Philippines

For the last 10 years, the <a href="http://www.centerforfinancialinclusion.org/microscope">Global Microscope on Financial Inclusion</a> has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest Global Microscope takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.
<h2>The Leaderboard</h2>
Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and the Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, the Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.

With this much consistency in the leaderboard, the more fascinating stories may lie with this year’s “most improved players”: India, Costa Rica, Honduras and Egypt. Each country has made notable progress on financial inclusion, but none more than India. With a national biometric identification system in place, continued progress on access and usage of bank accounts, an improved institutional framework and commitment to digital payments, India—already among the top countries—is increasingly seen as a model for ongoing progress.
<h2>Keys to Success</h2>
Commitment and consistency matter. An enabling environment for financial inclusion does not happen overnight. Colombia’s and India’s financial inclusion policy efforts predate even the first Global Microscope. Peru and Philippines signed on to the Maya Declaration, the first global platform for commitment to financial inclusion, back in 2011, with a small group of only 15 other countries. In short, it has taken years of concerted effort and political will for the top countries to earn and keep their spots in the Global Microscope index.

Broad-based policy pays off. The Global Microscope measures 12 components of the financial sector, ranging from level of government support to strength of dispute resolution mechanisms. None of the leading countries scored below 50 percent in any of the 12 components, and all but India achieved 100 percent in at least four components. (Colombia achieved perfect scores in a whopping eight components.) The leading countries demonstrate that you have to proceed on multiple fronts simultaneously to make meaningful progress in financial inclusion.

Consumer protection is a winning strategy. Treating consumers right is an essential part of successful financial inclusion, but when it comes to fair treatment, especially mechanisms for airing and resolving customer complaints, most countries are underperforming. By contrast, leading countries prioritize consumer protection, and their scores show it. Colombia and Peru receive perfect scores in the consumer protection-focused components, and the rest of the leading countries rank in the top eight. Prioritizing consumer protection, as the leading countries have done, is a key to expanding financial inclusion.
<h2>Remaining Challenges</h2>
Enforcement is limited. Rules don’t mean much if you can’t enforce them, and that’s the story for many countries’ financial sectors. The average score for regulatory and supervisory capacity for financial inclusion, which spans credit portfolios, deposit-taking activities, insurance for low-income people and branch/agent models, is only 48 out of 100.

Consumer protection is especially weak. Again, consumer protection is an area of particular weakness, constituting some of the lowest average scores in the index. For example, monitoring of consumer protection for insurance for low-income people netted an average score of just 15 out of 100. Most countries are grappling with widespread lack of market transparency and predatory sales and collection practices.

Usage still lags policy. Countries like India and Philippines have successfully enacted policies to increase access to formal banking, but are still exploring how to get people to actually use the accounts they open. Those countries are pursuing tactics like government-to-person (G2P) transfers to build familiarity and instill the habit of using accounts. On the other hand, countries like China that are experiencing the fallout from unregulated peer-to-peer (P2P) lending are now exploring how to protect investors without prohibiting the flow of capital.

As the financial sector expands thanks to digital advances and new product offerings, the policy environment will also need to evolve accordingly. The Global Microscope continues to report what the policy environment for financial inclusion should entail.

This post originally appeared on <a href="http://partners.wsj.com/metlife/multipliers/articles/financial-inclusions-best-in-class/">Multipliers of Prosperity</a>. 

Have you read?

<a href="https://cfi-blog.org/2015/12/04/global-microscope-2015-progress-on-the-financial-inclusion-front/">Global Microscope 2015: Progress on the Financial Inclusion Front</a>

<a href="https://cfi-blog.org/2015/12/09/where-the-best-place-is-to-be-an-insurance-providerand-other-insights-from-the-microscope/">Where the Best Place Is to Be an Insurance Provider... and Other Insights from the 'Microscope'</a>

<a href="https://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/">The ‘2014 Global Microscope’: Results and Surprises</a>

&nbsp;

&nbsp;

&nbsp;

Financial Inclusion’s Best in Class

Jeffrey Riecke

China’s economy has experienced tremendous growth in recent years, with a booming micro, small, and medium enterprise (MSME) market. There are over 50 million MSMEs in China that collectively account for over 60% of China’s GDP and over 50% of the government’s tax income. These businesses create 80% of total employment in China’s urban areas.

Despite China’s overall economic growth, the need to foster full financial inclusion is still imperative. In 2010, 38 million MSMEs lacked access to formal financial services, forcing them to borrow informally from friends, family, and moneylenders.

China

Alternative Data

Financial Technology

Does a speeding ticket help predict whether you will pay back a loan? While this might seem like a stretch, it may not be as farfetched as it sounds, at least in China.

China’s government is piloting a new ‘social credit’ scoring system that takes into account a diversity of financial and nonfinancial factors and behaviors. The financial ones are familiar – being delinquent on payments for insurance or social security. The nonfinancial ones are potentially troubling, and include, to name a few, traffic violations, jaywalking, dodging metro fares, violating the country’s family planning rules, <a href="http://www.independent.co.uk/news/world/asia/china-surveillance-big-data-score-censorship-a7375221.html">criticizing the ruling party</a>, and neglecting your elderly parents.

The social credit system may be used to affect financial opportunities, like securing loans, as well as non-financial ones, like job offers, your child’s admission to schools, faster treatment at government offices, access to luxury hotels, and being able to buy transit tickets.

As one would suspect from its name and design, the system has aims far beyond extending financial services. (Only <a href="http://www.bbc.com/news/world-asia-china-34592186">320 million</a> of China’s 1,400 million citizens have a traditional credit score.) The system aims to assess citizens’ overall trustworthiness. <a href="http://www.wsj.com/articles/chinas-new-tool-for-social-control-a-credit-rating-for-everything-1480351590">According to planning documents</a>, the initiative’s objective is “to allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step.” A high-level policy document released in September <a href="http://www.independent.co.uk/news/world/asia/china-surveillance-big-data-score-censorship-a7375221.html">writes</a>: “If trust is broken in one place, restrictions are imposed everywhere.” Indeed, in October President Xi Jinping <a href="http://www.wsj.com/articles/chinas-new-tool-for-social-control-a-credit-rating-for-everything-1480351590">called for</a> innovation in “social governance” that would “heighten the capacity to forecast and prevent all manner of risks.” <a href="http://www.independent.co.uk/news/world/asia/china-surveillance-big-data-score-censorship-a7375221.html">Reportedly</a>, those who are well-behaved will gain privileged access, while those who break social trust will not only be subject to restrictions, they’ll face expanded supervision and random inspections.

The social credit system is being piloting across a handful of cities across the country and is slated for a nationwide roll-out by 2020. The system is driven by the State Council (which is the Government’s cabinet) and the Central National Planning Agency.

The new social credit system would tie into the country’s existing blacklisting system, which is part of its judiciary system and affects citizens’ abilities to partake in certain services. In a <a href="http://www.wsj.com/articles/chinas-new-tool-for-social-control-a-credit-rating-for-everything-1480351590">comprehensive investigation</a> of the new social credit system, The Wall Street Journal shares an anecdote of how under the existing blacklist system, a travel company executive can’t buy tickets for planes or high-speed trains because a Hangzhou court put him on a blacklist after he lost a dispute with a landlord. The social credit system’s blueprints, released by the Government in 2014, indicate that the blacklisting mechanism will expose offenders, enforce restrictions, and embolden well-behaved citizens.

In the neighborhood of Yangjing, as part of the social credit system pilot, a “red list” of exemplary residents is already being published. However, it hasn’t yet been decided if the corresponding “gray list” of residents who have behaved badly will be publicized. Yangjing has roughly 170,000 residents but only 120 have made the red list. Limited data sharing has been cited as limiting the system’s ability to rate residents.

The social credit system will extend beyond citizens to rating companies too, in an attempt to hold organizations accountable for malfeasances like paying bribes, polluting, or health infractions.

More than three-dozen local governments across China are participating in this pilot phase, compiling digital records of social and financial behaviors. The system incorporates data produced by central government departments and local governments, such as court records, and loan and tax data. It is not clear whether governments are tapping private sector data. The 2014 system blueprint designates internet data as a “strategic national resource” but it remains to be seen whether private and public systems will be combined. As it stands, e-commerce companies like Alibaba are only obligated to provide the government with non-anonymous data revealing individuals’ identities in special cases like lawsuits.

However, the government has <a href="http://www.bbc.com/news/world-asia-china-34592186">greenlighted</a> eight companies to experiment via their own social credit scores pilots. For example, e-commerce giant Alibaba has droves of data pertaining to the everyday habits of its users. Alibaba’s Ant Financial and Sesame Credit are assigning users ratings based on behavior and partnering with other entities to offer perks. <a href="http://www.bbc.com/news/world-asia-china-34592186">A good rating</a>, which might come from behaviors like buying “productive” goods like diapers as compared to videogames, can enable express security screening at the Beijing airport, <a href="http://www.independent.co.uk/news/world/asia/china-surveillance-big-data-score-censorship-a7375221.html">renting cars without deposits</a>, or a prominent listing on the Baihe matchmaking site.

In its current form, China’s social credit system is dangerously suspect: it can be interpreted as a veiled attempt from the regime to dictate morality and more closely track and control a populace that already lacks basic rights like freedom of speech, particularly given that political activity is one of the elements observed and recorded in the score.

It is not surprising that a country with a strong tradition of heavy social control would devise a system that monitors and leverages so many aspects of a person’s behavior. But is it equally farfetched to think that elements of a social score could find their way into countries that prize and attempt to protect individual freedom? Consider the possible slippery slope. Today, use of data from multiple facets of a person’s life are used to tailor advertising and are increasingly incorporated into credit scoring algorithms. It is not inconceivable that such data could eventually be used to determine access to health insurance, preferential treatment by many industries, targeting by political parties, and ultimately, by government agencies.

Instilling incentives to improve citizens’ and organizations’ behaviors sounds like a socially positive aim. Who wouldn’t want our countries to be safer or our fellow citizens to pay their fair share? But contemporary systems whose punishments are siloed within their respective systems – e.g. traffic violations resulting in fines or revoking ones drivers license – are undoubtedly more appropriate.

Have you read?

<a href="https://cfi-blog.org/2015/09/15/insights-into-an-evolving-peer-to-peer-lending-industry-in-china/">Insights into an Evolving Peer-to-Peer Lending Industry in China</a>

<a href="https://cfi-blog.org/2016/05/11/financial-education-in-china-challenges-and-lessons-in-an-embedded-model/">Financial Education in China: Challenges and Lessons in an Embedded Education Model</a>

<a href="https://cfi-blog.org/2016/04/05/improving-access-and-usage-of-financial-products-and-services-in-china/">Improving Access and Usage of Financial Products and Services in China</a>

&nbsp;

The News from China: Can a Speeding Ticket Hurt Your Credit Score?

Press Release

Washington, D.C. (October 26, 2016) — The 2016 Global Microscope, a project of the EIU with technical support and oversight from the Center for Financial Inclusion at Accion, the Multilateral Investment Fund at the Inter-American Development Bank, and the MetLife Foundation, shows that essential policies for bringing financial inclusion to low-income groups are now widespread in the developing world.

2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India, and Digitization of Financial Services

MetLife Foundation

Brazil

Mongolia

<ul>
 	<li><a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope"><img class="alignright wp-image-22299" style="border: .5px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/10/global-microscope.png" width="265" height="338" /></a>Latin America and the Caribbean (LAC) and East and South Asia have the most conducive environments for financial inclusion. India stands out for the most progress in the last three years and is now ranked third </li>
 	<li>Further policy changes are needed if financial inclusion is to play the role envisioned in the Sustainable Development Goals</li>
 	<li>The digitization of financial services is key to increasing access to finance</li>
</ul>
<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">The 2016 Global Microscope on Financial Inclusion</a> shows that essential policies for bringing financial services to low-income groups are now widespread in the developing world. Nine of the 12 financial inclusion indicators covered in the benchmarking index improved globally in 2016, building on gains which have been made during the last decade. Even so, many countries have not moved significantly beyond basic policies, and greater focus is needed if financial inclusion is to play the critical role envisioned in the Sustainable Development Goals (SDGs).

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organisations in the field including the Center for Financial Inclusion at Accion. Now in its 10th year, the Microscope is the global standard for financial inclusion policy in developing economies.

Digitization of financial services holds great promise for improving access to finance. Overall, for the indicator on electronic payments, the average of countries' scores rose by a total of 14 points, or by 32 percent, between 2014 and 2016. This suggests widespread, positive action to create a regulatory environment more conducive to digital economic activity. Governments are also doing more to embed digitization by using it in their transfer payment programs. The Microscope report highlights examples of such transfer payments in Brazil, Mexico, Mongolia, and Uruguay.

India has shown particularly dramatic advances in its financial inclusion institutions and policies. It has, for example, set quantifiable goals for account opening for low-income families, with more than 200 million accounts opened, assisted by a national biometric identification program. The policy also emphasizes access to credit, insurance and pension facilities, as well as channeling all government benefit payments into individuals’ bank accounts to increase usage. India also has targets to provide alternative sources of access through bank branches, bank correspondents, ATMs, and satellite branches in villages of 2,000 or more residents. In addition, the Reserve Bank of India (RBI, the central bank) is working to facilitate digital money transfers through the launch of the Unified Payment Interface (UPI), and has issued guidelines to strengthen financial literacy.

Consistent with last year’s overall performance, Latin America and the Caribbean (LAC) and East and South Asia tie for the highest average overall scores by region, with LAC countries capturing four of the global top ten spots by rank. This year’s Microscope celebrates steady progress in countries that have continued to increase their commitment to financial inclusion, such as in India, Costa Rica, Honduras, and Egypt. These countries have made the biggest gains over the last three editions of the Microscope and have policies in place to continue this success.

For more, read the 2016 Global Microscope report <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">here</a>.

Have you read?

<a href="https://cfi-blog.org/2015/12/04/global-microscope-2015-progress-on-the-financial-inclusion-front/">Global Microscope 2015: Progress on the Financial Inclusion Front</a>

<a href="https://cfi-blog.org/2014/11/10/the-global-microscope-2014-results-and-surprises/">The ‘2014 Global Microscope’: Results and Surprises</a>

<a href="https://cfi-blog.org/2013/10/03/global-microscope-finds-the-world-getting-more-microfinance-friendly/">Global Microscope Finds the World Getting More Microfinance-Friendly</a>

&nbsp;

&nbsp;

2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise

<h2>Latin America and the Caribbean (LAC) and East and South Asia have the most conducive environments for financial inclusion. India stands out for the most progress in the last three years and is now ranked third globally.</h2>
Financial inclusion is now on the global agenda and is understood to be a critical foundation in the improvement of livelihoods, according to The Economist Intelligence Unit's (EIU) 2016 Global Microscope on Financial Inclusion. More than half of the 55 countries studied improved their enabling environment for financial inclusion in all areas in the past year. This year, India joins longtime leaders Peru, Colombia, and the Philippines at the top of the international country rankings.

The Microscope, a project of the EIU with technical support and oversight from the Center for Financial Inclusion at Accion, the Multilateral Investment Fund at the Inter-American Development Bank, and the MetLife Foundation, is intended to benchmark national progress on financial inclusion and catalyze reform. The Global Microscope 2016 assesses the regulatory ecosystem for financial inclusion by evaluating 12 indicators across a range of developing economies in East and South Asia, Eastern Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, and Sub-Saharan Africa. Now in its tenth edition, the Microscope has evolved from covering microfinance in Latin America and the Caribbean to a global study of the broader financial inclusion ecosystem. It is also one of the few benchmarking tools spanning this significant length of time.

The index results show steady but modest improvements compared to last year. The average score for the 55 countries has increased (from 48 points to 49 points, where 100 is best) and once again only one country in 2016 has a score that is 25 points or lower. However, for the first time in seven years, Peru does not occupy the top spot alone: it has been joined by Colombia, last year’s number two country. While these two leaders continue to perform highly and in Colombia’s case to strengthen certain areas, the more substantial shift and interesting story is about India. India is now firmly among the leaders, having tied the Philippines for third position overall. India, Costa Rica, Honduras and Egypt have made the biggest gains over the last three editions of the Microscope and have policies in place to continue this success.

Consistent with the overall performance of the past two years, Latin America and the Caribbean (LAC) and East and South Asia tie for the highest overall scores regionally, with LAC countries capturing four of the top ten spots by rank. Eastern Europe and Central Asia and Sub-Saharan Africa also tie for second place in the regional rankings this year. The Middle East and North Africa (MENA) region posted the lowest overall score in the index.

In addition to long-term commitment to broad financial inclusion strategy and policy, digitization of financial services holds great promise for improving access to finance. Overall, for the indicator on electronic payments, the average of countries' scores rose by a total of 14 points, or by 32%, between 2014 and 2016. This suggests widespread, positive action to create a regulatory environment more conducive to digital economic activity. Governments are also doing more to embed digitization by using it in their transfer payment programs.   There continue to be challenges facing the financial inclusion environment. Much work remains to be done, particularly in the areas of government support for financial inclusion, de-risking and client protection. Insurance for low income populations continues to be a persistent challenge, and stakeholders need to focus on usage of financial services, now that access is well underway.
<ul>
 	<li>Download the <a class="wf_file" href="http://www.centerforfinancialinclusion.org/storage/documents/EIU_Microscope_2016_WEBr2_2016.11.03.pdf">2016 Global Microscope in English (PDF)</a></li>
 	<li>Download the <a class="wf_file" href="http://www.centerforfinancialinclusion.org/storage/documents/EIU_Microscope_2016_SP_WEBr2_2016.11.03.pdf">2016 Global Microscope in Spanish (PDF)</a></li>
 	<li>Download the <a class="wf_file" href="http://www.centerforfinancialinclusion.org/storage/documents/EIU_Microscope_2016_Bibliography_04.pdf">2016 Global Microscope Bibliography (PDF)</a></li>
 	<li>Download the <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/02/microscope-2016-v0-1-9.xlsm">2016 Global Microscope Benchmarking Model (Excel)</a></li>
</ul>
&nbsp;

&nbsp;

&nbsp;

Global Microscope 2016: The Enabling Environment for Financial Inclusion

Philip Brown

Agent Banking

&gt; Posted by Philip Brown, CFI Advisory Council Member and Managing Director Risk, Citi Inclusive Finance

<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/752-financial-services-for-all-its-all-about-strategy"><img class="alignright wp-image-21721" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/08/banana-skins-cover.png" width="275" height="353" /></a>As new opportunities for inclusive financial services continue to grow, they are accompanied by an array of risks, many of which are not fully evident today. Since 2008, the Banana Skins surveys have charted both known risks and those that have previously been overlooked or underrated. The recently released report "<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/752-financial-services-for-all-its-all-about-strategy">It's all about strategy</a>" is no exception -- it surveys a spectrum of participants and gathers their perceptions of the risk in the provision of inclusive financial services.

What does this year’s survey tell us?

Continuous progressive change in service provider business models is not new. But the accelerated pace and diversity of change, coupled with extent of the redesign and transformation process across all aspects of the business model, are shifting inclusive financial service provision. There are changes across the creation and delivery of services, business economics and processes, delivery infrastructure, such as payment systems, mobile networks and agent networks, and strategies for customer acquisition and the targeted customer base. The inclusive finance sector is no longer defined around segment-specific institutions but around the end clients, services provided and the now diverse and growing universe of service providers.

Digital transformation is a pervasive theme in this year’s Banana Skins report, which is a call to recognise the risk of not thinking strategically about all aspects of financial service provision. Across the globe, mobile applications are adding millions of clients versus thousands for established models. Both non-credit products and new forms of credit such as instant nano-credit for pre-paid mobile phone users continue to grow. Rather than viewing disrupters as a threat, one cited respondent positively describes new competitors as facilitators of market development, improving the quality of services and creating pressure to reduce interest rates.

Strategy is defined in the report as "the risk that service providers will fail to develop business models which make them relevant and competitive in a changing market place".  As a result of digital transformation, there is a shift in mindset from incremental to exponential in every aspect of the business. With exponential strategy we must accept inherent uncertainty that we may not be able to follow the initial step-by-step plan and expect success.  In order to respond to increased speed and to more and unexpected changes, we must work to improve the quality and adaptability of drivers.

The report portrays a sector experiencing a shift from commercially driven transformation to technology driven financial inclusion business. In this context, the top ten risks are seen as internal or manageable by the service provider. This diverges from the trend in previous surveys, which have portrayed a shift in risk concern from an emphasis on enterprise or entity management risk to the broader external context, such as political, credit, and macro-economic risks.

"<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/752-financial-services-for-all-its-all-about-strategy">It's all about strategy</a>" is a wake-up call for greater strategic thinking on the part of service providers. Strong governance is key: without a sound, clear-sighted strategy, institutions could face marginalisation. This speaks to a shift in mindset from the incremental to the exponential – a mindset focused on growth and inclusion in a more client-centric and ever-changing risk landscape. It implicitly recognises the ability to reach new clients, align and re-engineer processes to their needs, and embrace new digital distribution opportunities.

This message is not just for service providers – it is equally applicable to investors, regulators, and other stakeholders. It highlights the increased responsibility of boards to provide strategic direction. In doing so, the survey’s most important contribution is to continue to raise the awareness and understanding of risk, and to provoke action.

Have you read?

<a href="https://cfi-blog.org/2014/07/14/2014-banana-skins-report-reveals-overindebtedness-as-biggest-concern-in-microfinance-industry/">2014 Banana Skins Report Reveals Overindebtedness as Biggest Concern in Microfinance Industry</a>

<a href="https://cfi-blog.org/2012/09/17/banana-skins-2012-improving-mfi-governance/" target="_blank">Banana Skins 2012: Improving MFI Governance</a>

<a href="https://cfi-blog.org/2011/02/04/is-microfinance-losing-its-fairy-dust-microfinance-banana-skins-2011-holds-the-answers/" target="_blank">Is Microfinance Losing Its Fairy Dust? ‘Banana Skins 2011’ Holds the Answers</a>

Keeping Your Eyes on the Road: Strategy in a World of Exponential Growth

Susy Cheston

Banks

Financial Service Providers

This study – produced in partnership with the Institute of International Finance - examines the underreported role of banks in driving financial inclusion. Of the 3.2 billion people in the world with financial transaction accounts, 97 percent hold an account at a financial institution. According to the World Bank’s Global Findex database, over 90 percent of the 721 million new accounts opened between 2011 and 2014 were opened at financial institutions—the vast majority banks, but also including credit unions, cooperatives, microfinance institutions, and postal banks. Banks are playing a leading role in providing and extending financial services to underserved populations. Thanks to advances in technology, banks are also increasingly designing viable business models to serve unbanked and underbanked populations, which Accenture has estimated as a $380 billion market opportunity.

<img style="margin-left: auto;margin-right: auto" src="storage/2_BanksLeadGlobalIncrease.png" alt="2 BanksLeadGlobalIncrease" width="540" height="375" />

To better understand the strategies enabling this growth, and to help banks, their partners, and the public sector work together to reach the next 2 billion, the Institute of International Finance (IIF) and the Center for Financial Inclusion at Accion (CFI) interviewed executives from 24 leading banks working in emerging markets to understand their business strategies, how technology and partnerships can enable inclusion, and where they see obstacles going forward.
<h2>Banks’ Top Opportunities in Financial Inclusion</h2>
1. Build on digital payments, including:
a. G2P - procurement, payroll, social transfers, pensions, etc.
b. Private sector - retailers, consumer goods companies, payroll, etc.
2. Start with the underbanked and use data to understand their needs.
3. Cross-sell the full range of products.
4. Address the usage gap by building financial capability.
5. Develop the ecosystem through bank-led partnerships, increasing customer convenience while sharing costs and risk.
6. Enable remote account opening using digital IDs, supported by proportional, tiered KYC requirements.
7. Align all systems to digital banking, benefiting banked, underbanked and unbanked customers.

<h2>Banks’ Top Barriers to Financial Inclusion</h2>
1. Lack of trust - in banks, in digital, in agents - leading to lack of uptake.
2. Lack of financial capability and digital literacy - leading to lack of usage.
3. Agent networks - building them, equipping them, ensuring their quality.
4. Data - privacy, security, cost, lack of capacity to analyze the data, lack of willingness for parties to share data, and regulations around these issues.
5. Regulatory issues, especially pricing, capacity, and KYC requirements.
6. Lack of coordination among government bodies.
7. Lack of connectivity/infrastructure.

<h3><a class="wf_file" href="storage/documents/IIF_CFI_Report_FINAL.pdf">Download the Publication here »</a></h3>
<h3><a class="wf_file" href="storage/documents/IIF2FCFI_Executive_Summary_1.pdf">Download the Executive Summary here »</a></h3>
<h3><a class="wf_file" href="storage/documents/Fact_Sheet_for_IIF_paper_SHC_2.pdf">Download the Fact Sheet here »</a>
<a class="wf_file" href="storage/documents/IIF2FCFI_Executive_Summary_1.pdf">
</a></h3>
&nbsp;

&nbsp;

&nbsp;

The Business of Financial Inclusion: Insights from Banks in Emerging Markets

Institute of International Finance

Women

Youth

&gt; Posted by Jeffrey Riecke, Communications Specialist, CFI

<img class="alignright wp-image-21528" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/07/thumb_d1d482f5b64147f3b642423546056b7e.jpg" width="330" height="220" />Last week the President of Mexico <a href="http://www.gob.mx/presidencia/prensa/mexico-incluyente-es-un-pais-en-donde-los-derechos-no-solo-sean-un-ideal-sino-una-realidad-permanente-en-la-vida-diaria-de-sus-habitantes?idiom=es&amp;hootPostID=59e0b3040a7725b90ee6f6f77ec46fca">launched</a> the country’s long-delayed National Financial Inclusion Strategy. The comprehensive plan engages the spheres of private banking, social welfare, public education, telecommunications, and more to extend quality financial services to the <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=3&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwiTh93rrMjNAhWDQD4KHbawCZAQFggpMAI&amp;url=http%3A%2F%2Fwww.worldbank.org%2Fen%2Fnews%2Ffeature%2F2016%2F06%2F23%2Fmexico-to-accelerate-path-to-financial-inclusion&amp;usg=AFQjCNGdb7LKkf3NUC2pMxk3B2TJCMGN7g&amp;sig2=2msHvwRJF51iDTiZcO9L0A">56 percent</a> of adults in the country who remain without a formal bank account. Although the plan was nearly full-formed three years ago and has since sat on the proverbial shelf, the enactment of the strategy represents a reaffirmed commitment to financial inclusion across the Mexican Government, including the Office of the President, the Central Bank, the Ministry of Finance, and the Ministry of Public Education.

The national strategy is structured as a six-pillared plan. The Ministry of Public Education (Secretaria de Educacion Publica) will promote financial education starting with children and youth by incorporating related content into the curriculum of public education. Financial education will also be embedded in government programs like <a href="http://www.gob.mx/presidencia/acciones-y-programas/prospera-programa-de-inclusion-social">Prospera</a>, <a href="http://www.creditojoven.gob.mx/portalcj/content/index.html">Credito Joven</a>, and <a href="http://empresarias.inmujeres.gob.mx/">Mujeres PYME</a>. Prospera is Mexico’s conditional cash transfer program, which has 6.5 million beneficiaries. Credito Joven is a youth inclusion program introduced in February 2015 that aims to empower young people, in part by providing credit to those with no credit histories. Mujeres PYME offers finance and business development support to small businesses led by women.

The strategy will harness technological innovation in areas including digital payments, mobile phones, and mass data analysis. Recent fintech progress in the country offers a strong foundation on which to build. In 2010 the Mexican government began efforts to digitize social transfers previously made in cash. In 2013 the government launched its national digital strategy, “<a href="https://www.gob.mx/mexicodigital/">Mexico Digital</a>”, to further support the country’s transition to a digital economy. Today half of Prospera program recipients receive their payments in digital accounts facilitated by the program. Between 2013 and 2015, the number of digital transactions conducted through the Government’s <a href="https://www.imf.org/external/pubs/ft/wp/2010/wp10143.pdf">Treasury Single Account</a> increased from 69 million to 116 million. The Better Than Cash Alliance <a href="https://www.betterthancash.org/news/blogs-stories/digitization-of-payments-in-mexico-saves-billions">estimates</a> that the Government of Mexico saves roughly $1.3 billion per year through digitized payments that were previously made in cash. Moody’s Analytics <a href="https://usa.visa.com/visa-everywhere/global-impact/moodys-analytics-study-the-global-impact-of-electronic-payments.html">found</a> that between 2011 and 2015, the use of digital payments boosted Mexico’s GDP by around $8 billion. Following the launch of the national strategy last week, Mexico bolstered the switch to digital finance for citizens, businesses, and the government by <a href="http://www.prnewswire.com/news-releases/mexicos-route-to-financial-inclusion-begins-with-commitment-to-reduce-the-use-of-cash-300289618.html">joining</a> The Better Than Cash Alliance.

Out of Mexico’s population of 120 million, <a href="http://www.prnewswire.com/news-releases/mexicos-route-to-financial-inclusion-begins-with-commitment-to-reduce-the-use-of-cash-300289618.html">107 million</a> have a mobile phone and 68 million of these are smartphones. This represents a 24 percent increase in smartphones over just the past 15 months. However, there’s still a long way to go for mobile money – only 9.5 percent of those with bank accounts in the country have mobile banking services associated with them. The Central Bank’s inter-bank payments system, SPEI (Sistema de Pagos Electronicos Interbancarios), has evolved to accept the payments of non-bank providers, like those offering mobile money, <a href="http://www.gsma.com/mobilefordevelopment/programme/mobile-money/national-infrastructure-to-support-mobile-money-interoperability-lessons-from-mexicos-inter-bank-payments-system-spei">facilitating</a> an interoperable mobile money platform that could mature into a comprehensive digital finance ecosystem. Speaking on the newly launched financial inclusion strategy, Luis Videgaray Caso, the Secretary of Finance, <a href="http://www.gob.mx/presidencia/prensa/mexico-incluyente-es-un-pais-en-donde-los-derechos-no-solo-sean-un-ideal-sino-una-realidad-permanente-en-la-vida-diaria-de-sus-habitantes?idiom=es&amp;hootPostID=59e0b3040a7725b90ee6f6f77ec46fca">asserted</a> that telecommunications reform is generating the most important foundational changes for the Mexican financial system.

Along with telecommunications infrastructure, the strategy prioritizes the development of financial infrastructure in underserved areas. The strategy emphasizes building partnerships between financial players, such as retail chains, to extend banking services to more dispersed locations. In its review of the national strategy, Fitch Ratings <a href="http://www.businesswire.com/news/home/20160623006033/en/Fitch-Mexican-National-Policy-Financial-Inclusion-Supports">highlighted</a> the importance of agent banking models; however, the deployment of agents is still at a relatively early stage. In September of 2015, there were 2.8 correspondents in Mexico per every 10,000 adults, compared to 1.9 bank branches per every 10,000 adults.

The fourth pillar of the national strategy is increased access and use of formal financial services for the underserved and excluded populations. During the launch event for the strategy, President Enrique Pena Nieto <a href="http://www.gob.mx/presidencia/prensa/mexico-incluyente-es-un-pais-en-donde-los-derechos-no-solo-sean-un-ideal-sino-una-realidad-permanente-en-la-vida-diaria-de-sus-habitantes?idiom=es&amp;hootPostID=59e0b3040a7725b90ee6f6f77ec46fca">noted</a> that through government programs his administration has been able to include nearly 7 million women in the formal financial system. Along with the Credito Joven and Mujeres PYME programs targeting youth and women, there is also a new program providing credit for small farmers. So far, 270,000 farmers have received credit products from the program, and 85 percent of these individuals lacked prior credit histories. Credit access for SMEs is also a big priority for the country, as they make up 71 percent of employment in the country and 51 percent of revenue from the business sector, but only 11 percent of the country’s banks’ total loan portfolio.

The strategy emphasizes the importance of client protection - promoting safer services, responsible institutions, and clarity on the rules and conditions surrounding the provision of financial products and services. This section of the national plan focuses on strengthening <a href="http://www.condusef.gob.mx/">CONDUSEF</a>, the government agency concerned with the treatment of financial clients.

Finally, the sixth pillar of the national strategy is the generation of data and measurements to assess financial inclusion. In any effort, it is critically important to conduct periodic evaluations and use up-to-date data. The national strategy seeks to continue efforts like the country’s <a href="https://www.bbvaresearch.com/en/publicaciones/determinants-of-financial-inclusion-in-mexico-based-on-the-2012-national-financial-inclusion-survey-enif/">National Survey of Financial Inclusion</a>. The week prior to the release of the national strategy the second National Survey of Financial Inclusion was announced.

Undoubtedly Mexico’s new National Financial Inclusion Strategy is ambitious. After all, its ultimate aim is for all Mexicans to gain access to the formal financial system. At the strategy’s launch event, Queen Maxima of the Netherlands, speaking in her role as special advisor to the U.N. Secretary General, <a href="http://www.gob.mx/presidencia/prensa/palabras-del-presidente-de-los-estados-unidos-mexicanos-epn-durante-la-presentacion-de-la-politica-nacional-de-inclusion-financiera?idiom=es">stated</a> that successful implementation of the plan will require careful planning and coordinated action across public and private groups. But if the strategy is realized, the benefits would be massive. Achieving full financial access in Mexico would bring 67 million individuals into the formal banking system.

Image credit: Accion

Have you read?

<a href="https://cfi-blog.org/2016/05/13/steering-financial-education-towards-creating-financial-capability-in-mexico/">Steering Financial Education Towards Creating Financial Capability in Mexico</a>

<a href="https://cfi-blog.org/2016/06/09/three-behavioral-implications-of-how-mexico-diaries-households-pay-for-healthcare/">Three Behavioral Implications of How Mexico Diaries Households Pay for Healthcare</a>

<a href="https://cfi-blog.org/2015/11/13/a-pathway-to-better-retirement-in-mexico/">A Pathway to Better Retirement in Mexico</a>

Mexico Launches Comprehensive Financial Inclusion Strategy