Financial Inclusion

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.

• Financial inclusion has been identified as an enabler for 7 of the 17 Sustainable Development Goals.   

• The G20 committed to advance financial inclusion worldwide and reaffirmed its commitment to implement the G20 High-Level Principles for Digital Financial Inclusion. 

• The World Bank Group considers financial inclusion a key enabler to reduce extreme poverty and boost shared prosperity. 

Being able to have access to a transaction account is a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments. A transaction account serves as a gateway to other financial services, which is why ensuring that people worldwide can have access to a transaction account continues to be an area of focus for the World Bank Group (WBG). Most notably, it was the focus of the World Bank Group’s Universal Financial Access 2020 initiative, which concluded at the end of 2020. Though many gains were made through this initiative, it is an indicator of the scale of the challenge that still more work remains to be done.

Financial access facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies. As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives. 

The ongoing COVID-19 crisis has also reinforced the need for increased digital financial inclusion. Digital financial inclusion involves the deployment of the cost-saving digital means to reach currently financially excluded and underserved populations with a range of formal financial services suited to their needs that are responsibly delivered at a cost affordable to customers and sustainable for providers.

Great strides have been made toward financial inclusion – the number of adults without access to an account has steadily declined from 2.5 billion in 2011 to 1.7 billion in 2017 to 1.4 billion in 2021. As of 2021, 76% of the world’s adult population had an account. But because account ownership is nearly universal in high-income economies, virtually all unbanked adults live in developing economies. Digital financial services — including those involving the use of mobile phones — have now been launched in more than 98 countries, with some reaching significant scale. As of early 2021, there are over 1.35 billion registered mobile money accounts worldwide. As a result, millions of formerly excluded and underserved poor customers are moving from exclusively cash-based transactions to formal financial services using a mobile phone or other digital technology to access these services.  

Moving from access to usage of accounts is the next step for countries where 80% or more of the population have accounts (for example, China, Kenya, India, Thailand). These countries relied on reforms, private sector innovation, and a push to open low-cost accounts, including mobile and digitally-enabled payments. The COVID-19 pandemic also accelerated the adoption of digital payments in developing countries across the world.

However, close to one-third of adults – 1.4 billion – are still unbanked in 2021, according to the latest  Findex data. About half of unbanked people included women poor households in rural areas or out of the workforce. 

Between 2017 and 2021 gender gap in account ownership fell from 9 percentage points to 6 percentage points in developing countries. But the gender gap continues to hinder women from being able to effectively control their financial lives. There are some early signs that mobile money accounts may be helping to close the gender gap in many countries.  

Since 2010, more than 55 countries have made commitments to financial inclusion, and more than 60 have either launched or are developing a national strategy. Countries that have achieved the most progress toward financial inclusion have: 

• Policies delivered at scale, such as universal digital ID - India and Aadhaar / JDY accounts - more than 1.2 billion residents covered 

• Leveraged government payments. (For example, 35% of adults in low income countries receiving a government payment opened their first financial account for this purpose.)

• Allowed mobile financial services to thrive. (For example, in Sub-Saharan Africa, mobile money account ownership has grown from 12% in 2014 to 33% in 2021.)  

• Welcomed new business models, such as leveraging e-commerce data for financial inclusion 

• Taking a strategic approach by developing a national financial inclusion strategy (NFIS) which bring together diverse stakeholders including financial regulators, telecommunications, competition, and education ministries 

• Paying attention to consumer protection and financial capability to promote responsible, sustainable financial services

When countries take a strategic approach and develop national financial inclusion strategies which bring together financial regulators, telecommunications, competition and education ministries, our research indicates that when countries institute a national financial inclusion strategy, they increase the pace and impact of reforms. 

Last Updated: Sep 13, 2022

The World Bank Group plays a critical role in advancing financial inclusion in the world since it can leverage its financial sector expertise, country engagement and dialogue, financing and risk-sharing instruments, unique datasets and research capacity, and influence with standard-setting bodies and the G20.

We have developed an integrated and unified approach in our work to help countries achieve financial access and responsible financial inclusion, which focuses on 5 intertwined pillars:  

1.       Pillar 1: National Financial Inclusion & Fintech Policy and Strategy

Financial inclusion spans a wide range of topics and stakeholders. FICP activities under Pillar 1 focus on providing holistic assessments and strategies for financial inclusion, providing assistance to clients on how to approach financial inclusion, with increasing focus on digital financial inclusion and leveraging fintech to promote financial inclusion, in a comprehensive and systematic manner and how to align across a range of different actions to work towards achieving the broader goal of financial inclusion. 

Technical offerings under pillar 1 include:

·       Financial Sector Assessment Programs (FSAPs): These assessments, conducted in collaboration with IMF, systematically examine levels of access to finance (including through digital means), sustainability and diversity of providers (including innovative providers), the range of appropriate products currently available in the market, and national policies and programs with respect to financial inclusion.

·       National financial inclusion strategies (NFIS):  This is technical assistance to design and implement national or subnational roadmaps and action plans to achieve financial inclusion objectives, including through digital financial services.

·       Data Infrastructure and Measurement: This is support to develop data infrastructure and measurement systems for financial inclusion, including via national demand-side financial inclusion surveys, supply-side data collection to support measurement towards financial inclusion strategy targets, geospatial mapping initiatives for financial inclusion and KPI development, as well as approaches to measure digital financial service / Fintech related data for financial inclusion purposes, particularly for providers that fall outside of traditional regulatory perimeters. 

·       Women and Finance: tools to address the issue of women and financial inclusion.

2.       Pillar 2: Financial Products and Providers for Underserved Segments

Activities under pillar 2 focus on direct technical assistance to implement policy reforms specific to products or providers that benefit underserved segments, including women and rural populations. 

Technical offerings under this pillar include: 

·       Innovative products focused on the underserved: Technical assistance on expanding the range of products appropriate for the underserved individuals and MSMEs, by helping clients conduct demand-side research to better inform design and delivery of appropriate products and services for the rural underserved.

·       Innovative providers focused on the underserved. Technical assistance on enabling the entry and operation of innovative providers that serve underserved individuals and MSMEs through assessment of new providers and developing enabling regulatory frameworks and supervisory activities that are proportionate to their scope and type of activity.

·       Strengthening Strengthen competition and expand access points: support on regulatory and supervisory reforms to open up access and ensure level playing field for banks and non-bank (or non-traditional service providers), such as telecoms companies, “fintech” firms, post offices, cooperatives and agent networks.

3.       Pillar 3: Financial Consumer Protection 

Financial consumer protection is a critical complement to financial inclusion, in order to ensure that financial inclusion benefits consumers (especially those consumers new to the formal financial sector) and does not expose them to potential harm. We provide technical assistance in full range of consumer protection topics including disclosure, market conduct supervision, data protection and dispute resolution.

Technical offerings under pillar 3 include;

·       Financial consumer protection diagnostics: Comprehensive diagnostics in financial consumer protection, assessing existing legal and institutional frameworks and market practices against the Good Practices for Financial Consumer Protection.

·       Institutional arrangements: technical assistance on strengthening institutional mandates for financial consumer protection, advising on institutional arrangements and coordination mechanisms across financial sector authorities working on financial consumer protection. 

·       Financial consumer protection legal framework: technical assistance in drafting financial consumer protection regulation to cover the full range of FCP issues (e.g. regarding FSPs’ conduct, disclosure, internal complaints handling etc.), whether via product- or provider-specific regulation or umbrella FCP regulation.

·       Market conduct supervision: technical assistance on market conduct advising on the development of supervisory strategies, manuals, and reporting templates and providing supervisory training, risk assessment frameworks.

·       Disclosure and transparency: technical assistance in drafting disclosure regulation; designing key facts statements for an increasing range of products (e.g. consumer credit, current accounts, insurance, collective investment schemes), and conducting consumer testing of key facts statements, as well as adapting disclosure and transparency for DFS (e.g. digital disclosure). 

·       Fair treatment and business conduct regulation: technical assistance and tools in the areas of product governance and suitability, as well as in appropriate policy approaches to address over-indebtedness.   

·       Accessible and effective channels for alternative dispute resolution (ADR): technical assistance on ADR mechanisms, including advising on legal frameworks for ADR schemes (e.g. jurisdiction, legal powers), establishing ADR schemes (e.g. governance, funding arrangements, structure, staffing), and providing trainings on ADR operations and processes. 

·       Data privacy and protection: technical assistance tools to help countries apply existing principles to the financial sector, with adaptations to address new risks posed by fintech and DFS such as risks related to big data, alternative credit scoring, discrimination, consent, algorithmic governance, etc.  

4.       Pillar 4: Financial Capability and Behavioral Insights

Financial capability is the internal capacity to act in one’s financial interest, given socioeconomic and environmental conditions. It encompasses the knowledge, attitudes, skills, and behaviors of consumers with regard to managing their resources and understanding, selecting and making use of financial services that fit their needs. 

The FICP team leverages insights from research on financial capability and behavioral economics and provide strategic advice to authorities on how to approach financial capability and use financial capability to make financial inclusion efforts more effective through targeted actions that complement programs, reforms and regulations including those related to consumer protection.

Technical offering under this pillar include:

·        Identifying large-scale opportunities to incorporate financial education messages into existing programs and interventions to improve financial outcomes of target populations, especially where these are critical populations for financial inclusion objectives (such as recipients of social transfer programs or programs focused on women’s access to finance) 

·        Financial capability interventions to complement policy reforms and regulations related to financial inclusion, digital finance and fintech, consumer protection and related topics   

·        Support to national authorities to develop a strategic approach to financial capability reflecting behavioral insights and best practices, as part of a broader strategic approach to financial inclusion and digital finance 

5.       Pillar 5: Micro, Small and Medium Enterprise (MSMS) Finance

Policymakers often lack efficient processes to monitor data on the supply of credit to MSMEs. The lack of realistic definitions for MSMEs, combined with the complexity and heterogeneity of the segment, make MSME finance very elusive to monitor. This limits the capacity of regulators to identify market gaps as well as “overheated” segments which may signal risks for stability. The FICP team provides technical tools to policymakers to conduct supply-side diagnostics on a systematic basis, not as a one-off analysis of the market, but as a comprehensive process to identify risks and gaps in the market and to communicate the results to other stakeholders. 

In addition to these five pillars, our work also focuses on payments and payment systems as means of furthering financial inclusion. This includes the following: 

-          Modernizing retail payment systems and government payments to help countries design strategies to promote the use of electronic payments, instead of cash and paper-based instruments. Many countries are successfully digitizing government payments by shifting all government-to-person payments into accounts, which typically lowers costs and increases financial access. It also leads to significant cost savings in the administration of payment schemes, as well as to reduced leakages related to corruption and fraud.

-          Reforming national payments systems (NPS), including remittance markets: conduct comprehensive diagnostics of countries’ payments and settlement systems, including remittance markets, and make recommendations to improve NPS.

Our work on financial inclusion also underpins the institution’s efforts in other development areas, including shifting social transfer payments from cash to digital, support to SMEs and agriculture, and the World Bank Group’s Identity for Development (ID4D) initiative.

It is also interwoven into other institutional initiatives, including: 

• The Women Entrepreneurs Finance Initiative (We-Fi) which focuses on removing financial and non-financial constraints for women small-business owners.

• The Digital Economy for Africa (DE4A) Initiative to support Africa’s efforts toward building inclusive and sustainable digital economies.

• Work in IDA countries as part of the IDA19 framework on women’s financial inclusion.

Globally, we engage with standard-setting bodies, help shape standard-setting initiatives and convene forums. 

G20 Global Partnership for Financial Inclusion (GPFI):  The World Bank Group is an implementing partner of the GPFI, an inclusive platform for all G20 countries, interested non-G20 countries and relevant stakeholders to work on financial inclusion. Under the China G20 Presidency leadership, the World Bank Group helped develop the G20 High Level Principles (HLPs) for Digital Financial Inclusion, and provided technical input to the New G20 Indicators for the Digital Financial Inclusion. The eight High Level Principles encourage governments to promote a digital approach to financial inclusion, and are being used as a reference tool by many countries.  The principles catalyze cross-government actions to drive financial inclusion through digital technologies, and also help ensure that consumer interests are at the forefront of policy concerns, emphasizing consumer protection and financial literacy. Under the Indonesia G20 Presidency leadership, the World Bank is leading the development of an implementation guide for the HLPs, along with CGAP, The Better Than Cash Alliance and OECD.

Payment Aspects of Financial Inclusion (PAFI) report outlines seven guiding principles and suggests actions countries can take to advance access to transaction accounts. It was prepared by a financial regulator task-force chaired by the Committee on Payments and Market Infrastructures (CPMI) and the World Bank Group.

As of June 2016, active financing operations to support national authorities to improve financial inclusion have been over $5 billion in commitments. We’ve also developed new guidance, diagnostic tools, data, and research to enable more effective national policy, regulatory, and supervisory frameworks. Since June 2012, our work has reached more than 70 million people, microenterprises and SMEs with financial services.

Through IDA17, the World Bank Group committed to supporting at least 10 IDA countries in achieving[BB1]  national commitments/targets to financial inclusion, which was met and surpassed. Since demand outstripped the original target, a total of 16 IDA countries, nine of which are in sub-Saharan Africa, were identified for Bank Group support to help meet national financial access and inclusion commitments. Eleven of those 16 countries now have new or expanded World Bank Group-financial access/inclusion projects.  These projects include comprehensive programs of technical, knowledge, and financial support to design and implement National Financial Inclusion Strategies, as well as to support transformational reforms and investment in innovative payment services, digital finance, micro/SME finance, responsible finance and related areas.

Our work compliments the efforts of other entities within the World Bank Group that also focus on financial inclusion:  

IFC, the World Bank Group’s private-sector investment arm, works to advance financial inclusion through its engagement with financial institutions and intermediaries. 

Also, the Consultative Group to Assist the Poor (CGAP), a global partnership of 34 leading organizations housed at the World Bank, works to advance financial inclusion through responsible market development and advocacy to increase access to financial services for the poor.

Country examples:

Indonesia established a new National Financial Inclusion strategy in August 2016, and in the last couple of years has undertaken various financial inclusion reforms to develop the culture of savings, strengthen the existing credit guarantee scheme and community empowerment schemes, improve financial infrastructure and payment systems, increase access to insurance, and enhance financial literacy.

The Bank Group is working with the country on reforms to expand financial access and digitize payments (including social transfers), expand access points, strengthen the regulatory and supervisory environment, and raise the population’s financial awareness and capability. 

Mexico: In June 2016, Mexico launched its national financial inclusion strategy to accelerate access to financial services for more than half of the population currently left out of the formal and regulated financial system. The Bank Group is helping the country strengthen financial sector oversight, foster credit and expand financial inclusion.

Mozambique: With support from the World Bank, Mozambique launched a new financial inclusion strategy in July 2016, designed to increase access to financial services from 24% to 60% of the population by 2022.

Pakistan: The World Bank is supporting country-led efforts with reforms and other actions to expand financial access and inclusion. The Bank Group’s support has enabled Pakistan to strengthen its banking system and increase private sector participation.

Peru: The country’s national financial inclusion strategy, formulated with the Bank’s assistance and launched in 2015, committed the government to ensure that at least 75% of adults have access to a transaction account by 2021. 

The World Bank Group works globally with standard-setting bodies to develop guidelines, standards and good practices. We also work with the G20 to develop guidance for regulators and policymakers and to catalyze new actions in support of financial inclusion. We are also an implementing partner for the G20 Global Partnership for Financial Inclusion (GPFI).

We also work closely with a number organizations and donor partners to advance financial inclusion, including Alliance for Financial Inclusion (AFI), AusAid, the Bill and Melinda Gates Foundation, DFID, Financial Sector Development Trusts, GIZ, the Ministry of Foreign Affairs of the Netherlands, the OECD, SECO, UNCDF, UNCITRAL, UNSGSA, USAID, and regional development banks.