Financial Inclusion: Recap of the State of Microfinance After Hours Seminar

This guest post is written by Rosita Najmi, Program Manager at the Center for Financial Inclusion.

Financial inclusion: it is a priority for organizations, multilaterals, and governments across the world. While there is a diversity of definitions and methodologies associated with this concept, for most efforts to ‘financially include,’ stakeholders are motivated to mitigate the alarming statistic that over half of the world's 2.7 billion adults lack access to financial services.

To achieve a clearer understanding of financial inclusion, it might be useful to examine the concept through the lens of several leading international organizations. These industry leaders define financial inclusion in the following ways:

• UNCDF: “…Universal access, at a reasonable cost, to a wide range of financial services, provided by a variety of sound and sustainable institutions.”
• CGAP: In an April 2011 draft of Microfinance Consensus Guideline, CGAP refers to the “policy goal of reaching all financially excluded households with a full range of responsibly delivered, affordably priced, reasonably convenient, formal financial services.”
• Transact (a UK national forum for financial inclusion): “A state in which all people have access to appropriate, desired financial products and services in order to manage their money effectively. It is achieved by financial literacy and financial capability on the part of the consumer and access on the part of financial product, services and advice suppliers.”
• The Center for Financial Inclusion: “…A state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. Financial services are delivered by a range of providers, most of them private, and reach everyone who can use them, including disabled, poor, and rural populations.”

Across these (and other) industry players, we find varied advice about precisely how a financial solution is operationalized, including how it implicates technology, policy, innovations in products and services, financial literacy, and integration with other sectors, such as health, agriculture, energy, and post-conflict, post-disaster response.

For example, during the June 2 USAID Microlinks After Hours Seminar, Shari Berenbach (USAID), Sam Daley-Harris (Microcredit Summit Campaign), and Tilman Ehrbeck (CGAP) offered their perspectives on what financial inclusion means, including future projections of this development approach. The following includes highlights from the reflection gathering and questions for the ongoing conversation on financial inclusion.

Know your clients…better: All three industry leaders agreed that we can all do more to better understand the demand-side of financial inclusion by learning more about our clients. Who are the “excluded?” Are they indigenous populations, transitory populations, persons with disabilities? What do they want? How is what they want different from what others think they need? How can the industry develop better segmentation? While Portfolios of the Poor has helped us learn about a few families, there is much more to learn from other stories as yet unwritten.

An “ecosystem” of providers: Ehrbeck suggests that we need an “ecosystem” to encompass a broader array of actors, with a shared electronic backbone linked to capital markets. He emphasized that governments can catalyze the development of such an ecosystem by setting the rules, employing existing country infrastructure, and driving volume. Further, INGOs, MFIs, commercial banks, and multilaterals each can contribute in ways based on their competitive advantages to the development and sustainability of a resilient financial ecology.

Microfinance for redemption: Daley-Harris suggests a key risk faced by the industry is the possibility of “losing its soul.” Daley-Harris advises us to think of microfinance as a form of redemption which restores our clients with honor and worth. One program, Financial Access at Birth (FAB), holds a similar belief that everyone deserves the dignity of financial citizenship.

Inclusion Beyond Access: Berenbach broadened the scope of the conversation by expanding the boundaries of inclusion to a number of frontiers, including rural and agricultural finance, which includes a market of 600 million households that needs accommodations for seasonal cash flow, climate risk management, and lumpy investments. Among these new frontiers are “pathways out of poverty,” which could include roles for savings, value chain, livelihoods, SMEs, and social empowerment.

You can view video interviews with the presenters here.

I look forward to future Microlinks events to help to drive and sustain the global dialogue about financial inclusion. Future discussions about financial inclusion could review the development potential of financial literacy and behavioral economics. We can reflect on the industry response to a survey of key obstacles and opportunities for inclusion. We might compare and contrast how organizations and governments are measuring inclusion. Finally, we could inquire what will happen to the moneylenders if we achieve fuller financial inclusion.