Finance: Research, Policy and Anecdotes

This past Tuesday saw a presentation by my former colleague Leora Klapper of the latest Global Findex report at Imperial College in London, sponsored by the Brevan Howard Centre.  A fascinating amount of data (available to researchers and others), with several main messages coming through: Financial inclusion is rising globally, partly driven by (mobile) technology.  However, the gender gap continues (more on this below). But there are still many gaps in financial inclusion across the globe, including in Africa but also some large emerging markets. Finally, having an account does not necessarily imply using it – yet another challenge!   

Following Leora’s presentation we had a fascinating discussion that also included Ruth Goodwin-Groen from the Better than Cash Alliance and Andrew Rzepa from Gallup.   The audience and yours truly, as moderator, asked lots of questions, which resulted in interesting (and sometimes surprising) answers. Here are some of them (I am paraphrasing the responses and include my own take on them):

What drives cross-country differences in advances in financial inclusion? It seems that one size does not fit all.  A mix of factors come in, including reducing regulatory barriers, competition but also government initiatives as in India. Setting goals for financial inclusion can be useful. Certainly a research topic for years to come and one that I am planning to take on with researchers and some additional data from the Alliance for Financial Inclusion.  

Should we construct a composite indicator of financial inclusion to rank countries and measure progress? Behind headline or composite indicators are often very different stories, as Leora also illustrated with some examples, so having an array of indicators capturing different dimensions (account ownership, account use, different types of services and products, different delivery channels etc.) gives a much more accurate and complete picture of financial inclusion.  Not having one headline indicator only (and a ranking based on it) might also avoid that we have artificial competition between countries to increase their inclusion ranking on paper rather than in reality.

The use of formal payment services has seen the largest increase, courtesy of the digital transformation of financial service provision. But there are critical voices against the drive against cash, though – as Ruth pointed out – these are mostly based in advanced rather than developing countries and might have very different motives in mind than financial inclusion. Though why would we expect so many to give up cash in favour of formal (and thus monitorable) financial services? I would argue because the better and cheaper availability of formal financial services moves the cost-benefit trade-off of working and living in the formal economy towards the benefits.   Where some see Big Brother looming, most of us see the benefits of participating in the modern formal market economy and society.

As Gallup surveys people across many different topics, the question arises whether there is something special about asking individual about their financial habits. And yes, indeed, people are more reluctant to talk about finance.  But as, importantly, there many local differences, not just in products and service providers, but also habits, which requires a rather careful “localisation” of the survey questions across the globe.  

Finally, where will be in 2020, when the next Global Findex survey will go into the field?  We all hope for further rises in financial inclusion, though the increase might be not as steep as over the past six years.  The role of technology will certainly increase further.  Among the challenges, the gender gap might be harder to narrow – value questions asked by Gallup seem to point to persistent gender biases among both men and women in some countries when it comes to joint account ownership and financial decision-taking. Finally, there are the unknown unknowns – as the first members of Generation Z reach adulthood and the Millennials will increasingly dominate the bankable and banked population across the globe, especially in developing countries, there might be further changes in habits and outreach efforts by providers (and some of these providers will be new).  Certainly, exciting times are ahead!

Overview