Financial exclusion is a central component of the poverty trap, foreclosing economic opportunities for the “unbanked” and making it almost impossible to start or grow a business. Billions of working people, mostly in Asia and sub-Saharan Africa, lack access to basic financial services, with women, the uneducated and migrants especially disadvantaged.
The microfinance movement in the 1970s realized that giving people — especially women — access to even tiny amounts of credit unleashes individual initiative and that creating the conditions for people to be more self-reliant is inherently empowering. As microfinance programs grew into established institutions and as emerging economies have become more formalized, the disparity between women’s and men’s access to financial services has grown. Today, approximately 58 percent of women have a bank account compared to 65 percent of men. This is not only an indicator of inequality, but it also exposes the fact that more than 35 percent of working people are excluded from opportunities for upward mobility.
We don’t have to wait for the slow march of progress for marginalized groups to gain access to modern financial services. Ubiquitous mobile technologies provide an immediate opportunity to reach the unbanked at a scale and pace that was previously unimaginable. Banks, mobile network operators, financial technology companies, governments and donors are using mobile technology to deploy new, innovative financial instruments for people at all income levels. New business models make it possible for people to have access to deposit and savings accounts, payment services, and loan and insurance products customized to their specific needs, in the most remote locations. Companies like bKash in Bangladesh and M-Pawa in Tanzania are revolutionizing financial services. By bringing a much larger portion of the population into the formal economy and speeding the velocity of money circulation, making transactions more transparent and secure, and opening new markets and opportunities for commercial businesses and public-sector programs across all sectors, digital financial services are driving forces for economic growth.
At FHI 360, we have seen the transformational power of these new tools. For example, in India we are working with the Institute for Financial Management and Research and the U.S. Agency for International Development (USAID) in a multistakeholder partnership called Catalyst, to scale digital payments to demonstrate how businesses can bring people into the formal financial sector. The initiative combines new technology and institutional innovations to disseminate modern business practices that help merchants and consumers, especially low-income and disadvantaged populations, benefit from India’s growing digital economy.
The international community, with support from the G20’s Global Partnership for Financial Inclusion, the Better than Cash Alliance and the Alliance for Financial Inclusion, has made huge strides toward financial inclusion, with 700 million people opening bank accounts in just the last five years. But, billions of people remain unbanked. As much as financial inclusion takes place in the private sector, closing the financial inclusion gap requires donors and nongovernmental organizations to unlock the full range of possibilities. Programs that spread financial literacy and ensure that women have access to mobile phones and governments that implement evidence-based, inclusive financial policies and regulations are natural targets for public–private partnerships. USAID’s upcoming Financial Inclusion Practitioner’s Day on December 2nd is an example of a donor providing leadership to convene players from across the public and private sectors. This event will be a good opportunity to reinforce the simple proposition that when people have the tools to build more prosperous lives, we are all better off.