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From microcredit to impact investing to social enterprise startup funding, this blog explores money matters.

Thursday, July 14, 2011

The Evolution of Financial Inclusion: A Survey of the Future

By Graham Macmillan

ACCION International's Center for Financial Inclusion (CFI) released an important report this week that has people in the microfinance sector taking notice.

"Opportunities and Obstacles to Financial Inclusion" is a comprehensive survey of 301 industry participants from around the world that sought their input on "how to make full financial inclusion a reality." I particularly like CFI's definition of financial inclusion: "Full financial inclusion is a state in which all people who can use them have access to a suite of quality financial services, provided at affordable prices, in a convenient manner; and with dignity for the clients."

As is well-documented, the microfinance sector has faced some growing pains which has provided an opportunity for reflection and adjustment where necessary. What is clear in microfinance is that more focus must be put on what the client needs and how the client uses financial services to put them on an asset-building path. Whether it is through randomized-control trials or appropriate product design, efforts are underway to drive more comprehensive financial inclusion by being demand driven. Key to understanding how this will happen is to ask what the sector sees in its crystal ball. The broader "Development through Enterprise" sector should take notice of what has been learned.

Here are highlights of what we should pay close attention to in the report:

1) Financial education is a critical driver of financial inclusion. In fact, 86 percent of survey participants from South America, where the microfinance industry is the most mature, strongly endorse financial education. Educated clients reduce risk for the institution and themselves while driving product innovation. There may even be evidence of a business case for financial education as well.

2) Financial inclusion requires a better understanding of what clients need. More Than Good Intentions by Karlan and Appel solidly outlines how new and better approaches to understanding what works and what doesn't is driving better product and program design. Certainly, Portfolios of the Poor by Morduch, Collins and Rutherford set the stage for better understanding the lives of low-income people. More of this needs to happen.

3) Technology is going to play an important role in delivering low-cost financial products, but the respondents' enthusiasm in the survey for mobile and branchless banking differed from market to market. Respondents from Africa were the most enthusiastic.

4) Regulatory efforts must be accelerated to level the playing field and to reduce uncertainty. Coupled with this industry-level view, the sector is clamoring for credit bureau and national identification schemes. Information is key and can be driven by policy and industry adoption.

There are other observations, but these are the ones I wanted to highlight.

Credit goes to Elisabeth Rhyne and Anita Gardeva for authoring this survey report. What is most appreciated is the thought-leadership they display and how they've issued a call to action that will help to shape the future of full financial inclusion.

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