Financial inclusion hype vs. reality
Deconstructing the 2017 Global Findex Results
Financial inclusion momentum has slowed in the past three years, the 2017 Global Findex revealed. If we still hope to build a financially inclusive world, it’s time for the financial inclusion community to reflect on these results, recalibrate expectations, and then re-engage.
In a new report, the Center for Financial Inclusion at Accion journeys through the 2017 Global Findex data recently released by the World Bank, which assesses progress toward financial inclusion from a 150-country study conducted by Gallup. We examined the 2017 Findex data from our perspective, and although we found some good news, there are also some concerning trends.
In recent years, the headline for financial inclusion has been the percentage of adults in the world with accounts (either financial institution or mobile-based). That number has grown since 2014 to 69 percent — good news. But we believe it is more relevant, if less encouraging, to focus on the number of adults with active accounts, that is, accounts they have used at least once in the past year. That number is 55 percent, representing a net gain of 393 million active accounts between 2014 and 2017, a much more modest gain than the nearly 700 million total new accounts added in the previous three years (2011–2014).
Looking specifically at the developing world and correcting for account dormancy, only 48 percent of adults in developing countries have active accounts — disappointingly, participation remains below half. Overall, account growth has slowed, and at the same time, the access-usage gap has grown.
Moreover, these new accounts have not resulted in greater availability of credit or more savings. Savings has dropped slightly in many countries in the past three years — and that includes both saving in any form and saving in financial institutions. In developing countries as a whole, about 20 percent of the adult population saves in financial institutions. Credit is essentially flat at 15 percent of the adult population, which may be a surprise for some who have watched with anticipation the rise of fintech-enabled digital credit using alternative data and algorithms. These new forms of credit will need to scale a great deal more before they can make a significant difference in the big picture of financial inclusion.
Financial inclusion promises to provide people with more options and tools to manage their day-to-day funds, respond to emergencies, and seize opportunities. The Findex survey asked whether people believe they can come up with funds in case of emergency. In developing countries, however, responses were slightly less positive in 2017 than in 2014. Asked whether they could come up with 1/20 GNI per capita in a month, only about 50 percent of people in developing countries said it was possible — down 8 percentage points from the 2014 survey.
In short, a full suite of quality financial services that supports financial well-being is still a distant dream for more than half of the developing world.
The bright spot, however, involves greater use of digital payments. Many more people in the developing world have been involved in a digital transaction in the past year than ever before. In developing countries, an additional 12 percent of adults reported having made a digital payment in the last year. Of wage recipients in developing countries, about half received wages into an account in the past year, and 21 percent of people in developing countries purchase things and pay bills using mobile phones or the internet. Mobile accounts are connecting people to financial services all across Africa and in a handful of other countries, and at the same time in other regions, more people are using mobile phones to access their financial institution accounts.
Despite the growth of digital payments, the Findex 2017 results overall are sobering. Financial inclusion, while further away than expected, is still an achievable goal. It requires considerable thought and engagement from all industry stakeholders to ensure that inclusion will create active usage and meaningful change in the lives of consumers. We hope the financial inclusion community will use the 2017 results to engage in a serious conversation about how financial inclusion initiatives are affecting usage, products, and financial well-being, and then re-engage with eyes open as we continue pursuing the crucial tasks at hand.
For more analysis on these and other areas of financial inclusion, read the new report, Financial Inclusion Hype vs. Reality: Deconstructing the 2017 Findex Results.
Elisabeth Rhyne contributed to this article. A version of this post appeared previously on the Center for Financial Inclusion blog.
This text has been updated to reflect a change in the estimated total increase of active account holders between 2014 and 2017 (393 million), and the percent of adults with dormant accounts in 2014 (12 percent) and percent of adults with dormant accounts in 2017 (13 percent).
