Financial Inclusion

Half of the world’s adult population, approximately 2.5 billion adults, lack access to formal financial services. As a result, most poor households live almost entirely in a cash economy. When designed correctly, electronic payment programs can advance financial inclusion, help people build savings and begin to access other financial services.

Financial Inclusion Creates Opportunity for People Living in Poverty

Access to financial products and services has the potential to reduce global poverty and increase economic growth1 and can help increase access to other important services such as healthcare, education and employment.2

  • Studies have shown that better access to financial services not only can increase economic growth, but also help fight poverty and reduce income gaps between rich and poor people.3
  • Recent impact studies4of savings accounts demonstrate that access to a savings account had a substantial, positive impact on levels of productive investments among women, and, within six months, led to higher income levels.
  • Just three years after its launch, Kenya’s M-PESA mobile money service now has more than 9 million users, 40 percent of all adult Kenyans. According to early results of a recent study by the University of Edinburgh, the transactions are much safer than carrying cash, and rural households using M-PESA saw their incomes increase by 5 to 30 percent. M-PESA customers recently were given the option to link their mobile phones to bank accounts, further increasing their opportunity to overcome poverty.5
  • There is a small-but-growing body of evidence6 that indicates transferring money directly into digital accounts, and enabling women to store and access their funds outside the home can have a positive impact on women’s empowerment. While it is too early to draw generalizable conclusions from these studies, the evidence suggests that direct digital payments can help increase female decision-making power and channel more household resources into food, schooling and other household necessities.7

Financial Exclusion Reinforces the Cycle of Poverty and Inhibits Economic Growth. Nearly 62 percent, or 2.2 billion, of the adults living in Asia, Africa, Latin America, and the Middle East lack access to formal financial tools. Living without access to a safe way to pay, save, get a loan, or buy insurance can reinforce the cycle of poverty and slow economic growth. Day-to-day it means travelling long distances to pay or get paid, often leaving behind a day’s work or children. The excluded must store money in unsecure places, increasing the risk of loss or theft, which in turn exacerbates the challenges in addressing an emergency or sickness. (Half the World is Unbanked, Financial Access Initiative.)

Electronic Payments Advance Financial Inclusion

Governments, the development community and the private sector make billions of dollars in cash payments to people living in poverty. When designed with financial inclusion as a goal, electronic payment programs can offer stepping stones to greater financial tools and services.8 To accomplish financial inclusion, electronic payment programs must focus on incentivizing the funds to stay in electronic form beyond the initial payment and also provide opportunities to save over time.

  • A study of the Mexican social welfare program Oportunidades that uses debit cards to disburse payments documented an increase in the number of families using banking services when they received their benefits through debit cards and a 12 percent increase on average in families’ use of grant for income generating activities or microenterprises.
  • Colombia has undergone one of the most rapid transitions to electronic with Familias en Accion, which pays bimonthly amounts to 2.4 million households, equivalent to 11 percent of the population. Within two years, 91 percent of recipients had a card-linked bank account.9
  • Mobile Transactions, a company in Lusaka, Zambia gives local cotton farmers without bank accounts an ability to electronically receive payments for their crops directly to their mobile phones. Farmers are not only able to get paid more quickly and transparently, but they can also use their mobile accounts to send money transfers, buy phone credit, pay school fees for their children, and order agriculture inputs such as fertilizer and seed. Electronic payments also allow them to build up a credit history over time, which can make getting loans easier in the future.10

 

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