Re-posted from the World Bank Blog Let's Talk Development
updating the Findex database
on financial inclusion over the 2014 calendar year, I had the pleasure of traveling
with Gallup, Inc., to pilot our expanded questionnaire.
We visited people’s homes and asked them to describe to us how they save,
borrow, make payments, and manage their risk.
man who lives in a small home in a Kolkata slum with his wife, children, and
parents works as a driver, and is paid directly to a bank account that was
opened for him by his employer. With great pride, he told us that every month
he leaves a balance in his account, which he believes is a safe place to save
for his children’s education.
I met a man in Kenya who grew a balance on his mobile M-Pesa account in order
to put down a deposit on his own “hair design” shop. In his words, “cash burns
are just a couple of examples of how
digital payments can reduce the cost and increase the security of sending and
receiving payments, and help progress towards the goal of broader financial
inclusion. With G20 nations increasingly focused on helping more low income
people participate in the financial system, the Bill & Melinda Gates Foundation,
the Better Than Cash Alliance and the World
Bank Development Research Group have partnered to highlight the exciting
potential of digital payments.
with any problem, it helps to measure its size and scope. Thus, our work began
with the Findex data, the first-ever construction of a global database
measuring financial participation– and it reveals the scope of the financial
than 2.5 billion adults around the world lack a formal deposit account.
41 percent of adults in developing economies have an account – and that number
drops to just over 20 percent among adults living on less than $2 a day have
in particular, are at risk of being excluded from the financial system – in
developing countries, only 37 percent of women have accounts, compared to 46
percent of men.
numbers are jarring. If you don’t
participate in the financial system, you can’t save, borrow, or invest. And it’s no wonder that many in the
international community are focusing on financial inclusion as a key piece of
the development puzzle.
we found when examining a series of studies from around the world, digital
payments offer immediate benefits for both senders and receivers.
cheaper to send money digitally than it is to send liquid cash – a good thing
if you’re sending a remittance home to a family member, and a game-changer if
you’re a government trying to reduce the overhead costs of social transfer
programs. It’s also cheaper to receive
digital payments – no more spending time and money traveling to an urban center
or waiting in line.
payments are also safer. Recipients, of
course, no longer have to travel long distances with cash on their person. But
street crime isn’t the only malfeasance that can be avoided: digital records
and more stringent ID requirements are effective tools in eliminating
corruption that threatens the success of transfer programs.
payments also is a big driver of women’s economic empowerment by putting more
economic agency in the hands of women and by making it harder for others in a
woman’s household to use money intended for her.
full report contains evidence
from studies performed in India, Niger, South Africa, Mexico, Brazil, El
Salvador, Bolivia, Peru, the Philippines, Malawi, Kenya, Rwanda, Nepal,
Mozambique, and the United States. Taken
as a whole, it clearly illustrates the enormous benefits of digitizing payments
– both as a way to make those payments more efficient and as a way to achieve
broader development goals like women’s economic empowerment and, especially,
it also reviews some of the challenges advocates of digital payments must
address. A major hurdle, unsurprisingly,
remains the lack of financial infrastructure in many low income countries,
particularly in rural areas. Without the
physical network required to deliver digital payments – infrastructure that
requires up-front investments – those who would benefit most are at risk of
being left out.
the mere existence of a digital payments infrastructure doesn’t necessarily
mean that people will choose to use it.
Those who have never had a bank account not only need to be educated on
how to use one, they also need to trust that using one is safe and
reliable. In the end, the goal isn’t
just to have people use digital accounts like cash, but to have them use
digital accounts to build credit, save, and make financial plans.
we argue, can help by establishing regulatory environments that recognize the
contributions that non-bank operators (like payment services providers and
mobile network operators) can make in addressing these challenges. Clear rules of the road will help ensure a
level playing field – and ensure that consumer protection remains at the
digitizing government payments can serve as a catalyst, spurring further
innovation in this space and paving the way for more involvement by private
sector actors and the international community.
the end, our investigation finds clear evidence that addressing these
significant challenges is well worthwhile – for economies of all sizes, for
governments, and for millions of people not included in the financial system -
Click here to read the full report.