Economic Development

The outlook series: inclusive finance—a roadmap for the next decade

January 04, 2023


Inclusive finance: a roadmap for the next decade

January 04, 2023

Monica Ballesteros

Senior manager, Policy and Insights

Monica Ballesteros is a senior manager in the Policy & Insights team at Economist Impact. Monica works with clients in the private and nonprofit sectors on research programs to help answer some of the critical economic and public policy questions facing our world. At Economist Impact she has led several bespoke engagements to promote economic, digital and financial inclusion. 
Monica has over 10 years of experience as a communications and research professional. Prior to her time at The Economist Group, Monica worked in the International Affairs Unit of Mexico’s Ministry of Finance and Public Credit, where she was part of the G20 task force. She also worked as an account manager in one of Mexico’s most prominent consulting firms, where she designed and implemented communication strategies for multinational corporations. She holds a master’s degree in international relations from the Fletcher School of Law and Diplomacy and a bachelor’s degree in political science from Wellesley College.

Inclusive finance: a roadmap for the next decade

 It will be another challenging year for the global economy in 2023. The long-lasting effects of covid, macroeconomic shocks and geopolitical risks will likely lead to a global recession. Like most crises, the poor will be  disproportionately affected. The World Bank estimates that by the end of 2022, as many as 685 million people will be living in extreme poverty [1].

The pandemic taught us that equity cannot be an afterthought of the economic response to these challenges: it must be a vital lever of economic development. In fact, crises can create opportunities to tackle inequalities that are holding back growth. The progress that we’ve seen in achieving financial inclusion shows that countries and businesses can accomplish more equitable growth while they face a crisis.

In 2022, the World Bank released its highly anticipated Findex report, which confirms that the world is going through an unprecedented wave of adoption of financial services. According to Findex, over 76% of the world has access to at least one account, compared to 51% in 2011. Covid-19  catalysed  the adoption of financial services–particularly digital payments— but the pandemic is only part of the story. Using our Global Microscope Index, Economist Impact has tracked policies, regulations and investments that countries have undertaken in the past decade to enable digital finance in low- and mid-income countries since 2007.

By pursuing the following vital enablers, countries can improve financial access, respond to crises and drive equitable economic development.

1. A conducive enabling environment improves financial access

In our 2021 Rethinking the Global Microscope report, Economist Impact found a significant relationship between the overall enabling environment for financial inclusion and the prevalence of financial accounts. The new Findex confirms the relationship between these policy inputs and the rates of account ownership.

Figure 2: the relationship between the enabling environment for financial inclusion and account ownership

Our analysis also found that the magnitude and speed of the improvement in the enabling environment has a significant effect on financial access. Countries that have embarked on coordinated and comprehensive strategies to promote financial inclusion have been more successful at achieving rapid improvements in account ownership. An example is Argentina, which experienced the greatest average improvement in our enabling environment scores and account ownership.
2. Digital infrastructures and public goods can increase economic opportunity and innovation
Our 2020 study found that investments in digital infrastructures including payment networks, digital IDs and connectivity were the main drivers of account ownership. In addition to providing access to the financial system, investments in digital infrastructure and digital public goods [2] allow countries to increase economic opportunity and support the development of innovation ecosystems. Thailand’s improvements in the Microscope were primarily driven by its strengthening infrastructure—it now  has the highest rate of account ownership among the countries covered in the report. Digital public goods will continue to be a crucial lever of inclusive growth in the next decade, making government responses to crises more efficient and improving international cooperation.
3. People need access to tools that increase financial resilience
Digitisation of government and wage payments are among the most effective measures governments and businesses can take to promote inclusion. Between 2017 and 2021, 39% of adults in developing economies opened their first account to receive a wage payment or money from the government. These systems allowed governments and businesses to quickly deliver government support and wages in response to covid-19 shutdowns. However, while digital payments are a useful entry point to the financial systems, they are not sufficient. As gas prices continue to rise and inflation outpaces wage increases, people will need financial tools that help them manage their budgets and build economic resilience. Evidence shows that increasing access to a broader set of financial tools, including insurance, can help poor people manage their money better in the face of unexpected setbacks [3].
4. Consumer protection regulation needs to evolve with consumer risks
Fostering trust in the financial system is important to achieving greater inclusion. Contrary to the assumption that increased regulation can hinder financial innovation and access, our Global Microscope research found that consumer-protection regulation had boosted financial access. The growing global economic and geopolitical risks are translating into increased risks for consumers, including fraud, identity theft and data breaches [4]. Over-indebtedness is another concern as households rely more heavily on debt instruments to weather inflation and rising energy costs [5]. As consumer risks evolve, policymakers and business leaders need to come up with new approaches to protect users.
A roadmap for the next decade
Universal financial inclusion is within reach and will be an important enabler of more productive and inclusive digital economies. However, increased access and the evolution of digital financial services presents a new set of policy and business challenges. To ensure that the financial system serves its users, creates economic opportunity and improves financial resilience, policymakers and business leaders need to improve the reach of the financial system through investments in digital public goods. They also need to foster trust in the financial system, putting consumer protection at the forefront of product and infrastructure development. Lastly, policymakers and financial providers should collaborate to add value to people’s lives. This can be done by promoting innovations and products that allow users to build financial resilience in the face of increasingly complex economic and environmental challenges.

[1] World Bank (2022) Poverty and Shared Prosperity 2022
[2] The definition of a digital public good: open-source software, open data, open AI models, open standards, and open content that adhere to privacy and other applicable best practices, do no harm by design and are of high relevance for attainment of the United Nations 2030 Sustainable Development Goals (SDGs)
[3] USAID (2022) Resilience Links 
[4] CGAP (2022) The Evolving Nature and Scale of Consumer Risks in Digital Finance 
[5] Center for Financial Inclusion  (2022) Global Findex 2021: Growth, Stagnation, and (Relative) Decline in Global Financial Inclusion 

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