The Road to Financial Inclusion: Solid Progress, Big Challenges
Global, November, 30 2015 -
The success of the microcredit years showed us that it is not poverty that generates financial exclusion but rather the opposite: financial exclusion generates poverty.
Over a decade ago, the financial inclusion community – including practitioners, advocates, researchers, and others - discovered something that seemed astonishing at the time: the poor were using financial services. We also learned that people living in poverty were able, and wanted, to use better financial services than those typically available to them (loans from family members, equity capital as opposed to insurance, running up a tab in shops instead of having credit, etc.). We even found that, because they placed a high value on these services, they were using them responsibly.
The success of the microcredit years showed us that it is not poverty that generates financial exclusion but rather the opposite: financial exclusion generates poverty. Unfortunately, microcredit alone was not enough to solve the problem. Studies have shown that microcredit, and credit in general, while a key financial service, is not the entire picture, nor is it even a significant part of gaining access to the financial system. Furthermore, there is no way to prove that more microcredit translates into more development.
Once it was recognized that much more than credit was needed to create sustained inclusive economic progress that would truly lead to overcoming poverty, we had to look into other services. By adding savings, financial education, and insurance to the mix, it was possible to broaden the scope of the debate and move from microcredit to microfinance. But the matter did not end there. Although it was demonstrated that access to, and the use of, savings accounts had a positive impact on opportunities for the poorest, we also learned that savings alone was not enough to generate a mass movement toward financial inclusion or to reduce the processes required in order to overcome poverty. Each piece—savings, credit, insurance, etc.—helped to improve the picture, but no single financial service was sufficient to trigger major progress.
In the current conversation around financial inclusion, emphasis is now placed on the fact that it is not enough to offer one or another service; we need them all, and all at the same time. Furthermore, they need to be quality services; they need to be within everyone’s reach at all times; and they need to be offered at very low financial and transaction costs. At the same time, we are also seeing the appearance of new transaction channels, especially digital channels, which offer new ways to develop a complex financial services package that is both diversified and relevant.
Today the financial inclusion community is working to promote a mass movement toward financial inclusion, which means access to, and the use of, quality, inexpensive, and uncomplicated services for conducting transactions or saving money, obtaining financing, and securing insurance and social welfare benefits, which together will enable us, especially the poorest, to make better use of money and take advantage of opportunities for investment and savings to generate new income and, above all, to be protected.
This is a story of lessons learned. It is also the story of the Consultative Group to Assist the Poor (CGAP), which for 20 years has been following these processes, seeking innovations; identifying risks to ensure that the steps taken will lead to positive outcomes, improvements, and new opportunities for the poorest; making certain that they will not impose costs and risks for those who are most vulnerable; seeking solutions for those who are outside the trend; and above all, placing citizens at the center, not only as actual and potential clients of the financial systems but also as persons who are entitled to exercise their rights.
The challenges today for those of us who are striving to achieve financial inclusion are enormous. We still have much to do, to innovate and to reach the masses. We are making progress, but the task is great and ever more demanding. And we must be modest. Even when we achieve the levels of financial inclusion that we aspire to, much will remain to be done to ensure that the poor have all the tools for moving forward. While we are currently focusing our efforts on financial inclusion, we cannot forget that the financial aspect, though often the determining factor, is only one of the components that needs to be made available to the poorest so that they can move gradually and steadily toward a better life.
While financial inclusion will bring great opportunities, we must also begin to think about the next step: namely, how we can complement financial inclusion with other non-financial products and services leading to expanded opportunities for the poorest that ultimately translate into sustained processes for overcoming poverty. We are transitioning from less to more, from the particular to the general, but in order to eradicate poverty, we will have to address the specific aspect with which we are most concerned—namely, financial inclusion—without forgetting that it will only bring the benefits we are seeking if it is part of a much larger effort that is more complex and diverse: the broad undertaking that will truly transform the lives of the poor.
CGAP plays a key role in this effort in both the narrow and the broadest sense. Let us continue to work toward financial inclusion while at the same time remembering that we will use, and the poorest are going to use, these new tools. We must make sure that they are able to do this, and that in doing it, their lives will begin to steadily improve.