With the current huge focus on Financial Inclusion at the global level and in an increasing number of governments, as well as rapid developments in technology, opportunities to provide financial services to the world’s poorest people abound. In many countries,
access to bank accounts has increased rapidly. However, usage of these accounts has generally been disappointing. See for example the extensive data in the newly updated
Global Findex. Top line statistics bear out the relatively lack of usage of accounts – 62% of the world’s population have some kind of formal account, but only 27% save and 11% borrow. In addition
for the poorest segment, 28% have accounts, but only 10% save and only 9% borrow through them.
Financial inclusion has all sorts of definitions. But key characteristics include services that are
accessible, affordable and safe – and that are used to the benefit of the consumer.
Accessibility has to do with delivery channels (whether physical branches, ATMs, etc), people (agents and customer service reps), and electronic (mobile and Internet). The increasing ubiquity of mobile phones is making mobile channels in conjunction
with agent networks critical. But accessibility also has to do with understandability (which is tied up with financial awareness and literacy), and with ease of use.
Affordability also isn’t quite as simple as it sounds. Transaction fees that would seem quite acceptable in a developed market will be prohibitive for the typically small transaction amounts of a developing market. Conversely, loan interest rates
that would be considered outrageous in a developed economy may seem like a bargain in some developing countries.
Safety covers a number of areas – deposit insurance, credit management, financial institution stability, privacy, security (physical as well as network), customer protection, and broader issues such as AML.
All of these factors speak to the need to design products and services from the ground up when seeking to increase financial inclusion to the poorest in any market. It isn’t sufficient to “dumb down” existing services designed for middle-class consumers.
Products above all need to be streamlined – limiting options, channels and features to those most suited to a particular market. This will allow management of provider costs, simplify usage, and allow for tighter risk management.
In line with simplified product development, financial institutions (in partnership with governments, schools and NGOs) must take ownership of ongoing financial capability in the communities they serve. This includes financial literacy education, but also
ongoing product design review, usage analysis, and customer relationship management (in its simplest form). Consumer conditions change (for example acquiring a stable income source), and so financial needs change with them. See the FI2020 Financial Capability
Working Group “Roadmap to Inclusion” document for a great analysis.
Only the combination of simple, accessible, affordable and safe products with growing financial capability will drive true financial inclusion – not just counting who has a bank account, but who is benefiting economically and socially from that access.
There’s much more to say about all this (and I plan to scratch the surface in future blog posts and papers). But for now, suffice to say that any financial services provider (whether bank, MicroFinance Institution, cooperative, community bank, or non-bank
provider) will need a particular focus on the poorest communities they serve if they are to contribute actively and profitability to financial inclusion. This contribution, surely, is one that we all should aspire to.
To come later: what product features and characteristics may be common across geographies and cultures, and what will need to be localized? Contributions welcomed!