As mobile banking and other technological innovations fuel the expansion of financial services in many developing countries, a new
No-frills savings and payment accounts, for example, offer a safe place for people to store and transfer money and help them maintain a relatively stable living standard. Evidence, however, is mixed on microcredit and micro-insurance products.
“When well designed, efforts to foster financial inclusion can be an effective way to empower people,” said
The 2014 Global Financial Development Report: Financial Inclusion, is the most comprehensive report yet on the topic. It comes as policy makers are pushing to reach the world’s unbanked – 2.5 billion people who make up about half of the world’s adult population. More than 50 countries recently set targets to improve financial inclusion. Last month, Kim announced a new initiative to provide universal financial access to all working-age adults by 2020 – with the help of technological innovations such as e-money accounts and e-mobile wallets.
Progress in Financial Inclusion
Mobile banking has played a key role in expanding financial inclusion among low-income populations in countries such as
The poor benefit the most from technological innovations, which make financial services cheaper and easier to access, the report says. Low-income economies, especially those with remote, sparsely populated areas, have much to gain from allowing the provision of financial services outside of established bank branches.
Many countries have made progress in expanding account use among the poor, women, youth, and rural residents, even without tapping into advanced technology. Some policies have proven to be especially effective, such as requiring banks to offer low-fee accounts, waiving onerous documentation requirements and using electronic payments to deposit government assistance into bank accounts.
Challenges in Expanding Financial Inclusion
But challenges remain. While several countries have quickly rolled out basic bank accounts for the unbanked, in some cases, millions of those accounts have remained dormant. Even more troubling, without healthy competition and effective regulation, credit is often overextended to people not qualified to receive it. And promoting credit without regard to cost actually exacerbates financial and economic instability, the report shows
Low-income countries face particularly daunting challenges. Thirty percent of the adults there saved in 2011, compared with 58 percent in high-income countries, according to analyses of the World Bank’s Global Findex database included in the report. And 11 percent of adults there saved using a bank account, compared with 45 percent in high-income countries. In addition, about 9 percent of the adults worldwide originated a loan from a formal financial institution, but those in developing countries are three times more likely to borrow from family and friends than from banks.
“Financial services are out of many people’s reach because market and government failures pushed the costs of these services to prohibitively high levels,” said