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How innovation drives financial inclusion As the developing world makes strides towards financial inclusion, the West is going in the other direction

The Analyst

At a time when the world’s two largest economies are engaged in a destructive quest to limit trade between people, any evidence of the benefits impact of globalisation cannot come soon enough.

Recently, we got just such an illustration in the form of the World Bank’s Findex report on global financial inclusion. The report is a detailed survey of the banking, saving and borrowing patterns of households in 140 countries. It covers developed and developing nations, rich and poor, women and men, tracing progress in the expansion of access to financial services.

Ready availability of reliable banking and payments facilities is essential for human flourishing. Contrary to what one might think, it is not for the rich and highly educated that these services are most important. Small-scale farmers, migrant workers and budding entrepreneurs in frontier markets depend critically on cheap and transparent payments and credit systems, as they have few alternative employment options and usually have meagre funds of their own.

Without basic financial services, the way of life of these people would be compromised and their living standards would decline.

It is therefore an auspicious development that the six years between the first (2011) and third (2017) editions of the Findex report have seen significant increases in the percentage of the world’s population with mobile money or bank accounts. Sixty-nine per cent of adults worldwide now use one or both of those services, compared to 51 per cent at the start of the decade.

Nowhere has the recent spread of financial services occurred most visibly than in emerging markets. While the share of adults owning accounts in these countries, at 63 per cent, remains far below their high-income counterparts, it stood at just 40 per cent six years ago. This rate of growth is remarkable even when compared to other measures of global development, such as the reduction of extreme poverty and the fight against communicable diseases, on which we have made great strides in recent decades.

One trend more than any other helps to explain the recent progress of financial inclusion, namely the expansion of mobile banking and payments.

The revolutionary effects of M-Pesa in Kenya are already relatively well-known. Since its introduction in 2007, this mobile money payments system has more than halved the cost of fund transfers and cut processing times from hours to a few minutes or seconds. M-Pesa has forced incumbent money transmitting services such as Western Union to slash their fees. It has also introduced millions of Kenyans to the formal finance sector, facilitating access to bank and savings accounts.

The extent to which other economies in sub-Saharan Africa have rushed to follow in Kenya’s footsteps is often not fully recognised, yet the Findex report bears it out. Since 2011, half a dozen countries, including Ghana, Nigeria, Senegal and Tanzania, have more than 40 per cent of adults with a mobile money or bank account.

Financial technology is also having a marked impact on the emancipation of women in societies that have tended to be highly patriarchal.

Aside from considerations of empowerment and autonomy, there are obvious practical reasons to want women to have access to finance. As well as making up half the adult population, they are chiefly in charge of household decisions and the raising of children, so financially active and literate women have a positive impact on the wellbeing of those around them.

And women who own a bank account can save and build businesses independently from their husbands and fathers. In communities that are traditionally averse to enterprise, giving access to financial services to the few – including women – with entrepreneurial ambition can accelerate development.

The spread of innovative banking and payments provision gives cause for celebration. Yet, just as the developing world gallops towards financial inclusion, Western countries are making it harder for their own people to borrow, save and invest.

America provides perhaps the starkest illustration. As of 2015, 7 per cent of U.S. households, nine million of them, did not have a bank account. An additional 19.9 per cent were “underbanked” in that they had to resort to alternative (usually higher-cost) providers for credit and other banking services.

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