A Market-Building Approach to Financial Inclusion

innovations / volume 10, number 1-2 © 2015 Arjuna Costa and Tilman Ehrbeck For many people around the world, gaining access to basic financial services such as savings, remittances, and credit might be the key to unlock poverty. Poverty, after all, is more complex than privation; it is also characterized by precariousness. Research shows that, in developed and developing countries alike, the earnings of low-income households are not just low, they are also likely to be irregular. When households can save, access credit, get insurance, send and receive money safely, and make payments easily, they’re better able to manage cash flow spikes and weather shocks that might otherwise send them back into poverty. In the last few years, the world has made real, measurable progress on fighting poverty through financial inclusion. The World Bank reported this year, in its 2014 Findex survey, that two billion working-age adults are unbanked, down from 2.5 billion in 2011. This is a great achievement for global development, made possible mainly by harnessing the power of markets and innovative technology. Today, 62 percent of adults worldwide now have access to at least one formal financial account, compared to 51 percent just three years earlier. At the macro level, financial inclusion is also critical to economic growth, and it advances many other development priorities such as health, education, and women’s empowerment. As more people gain access to tools to manage their money, their ability to build assets and smooth consumption not only improves the welfare of their own household, it also expands possibilities for whole economies. This array of benefits is why financial inclusion is explicitly called for in several of the new Sustainable Development Goals the United Nations adopted in September 2015. While hundreds of millions of people entering the banking the system since 2011 is a tremendous accomplishment, the work is not done. The UN’s goals call for ensuring that all men and women, “particularly the poor and vulnerable,” have equal access to financial services (as well as property rights, technology, and other economic resources)