NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

The Financial Inclusion 2020 Global Forum, in October 2013, was an opportunity for hundreds of leaders to come together and dedicate themselves to quality financial access for all, while at the same time proclaiming that global access is, in fact, within the realm of the possible. The Forum itself generated many action ideas, forged new relationships between actors and created a surge in momentum.

Since October, we at the Center for Financial Inclusion have been in a (very welcome) quiet phase, during which we are laying the groundwork for the next big push. Over the past few months we have been busy following up on some of the most fascinating insights that came out of the FI2020 process. I’d like to mention a few here – and describe how these insights can make a difference in the quest for global financial inclusion by 2020.

Aging and Financial Inclusion

One of the biggest “Aha!” insights for us came from our Mapping the Invisible Market work, which revealed the rapid growth of older population segments, especially among middle-income countries. In these countries, including much of Latin America and Asia, the over-65 age cohort will rise within a decade or two from about 5 percent of the population to about 15 percent, putting great stress on traditional systems for supporting later life.

We are sure that such changes will have big implications for financial inclusion, and so we decided to team up with HelpAge International, one of the premier global organizations dedicated to aging. When we contacted HelpAge, it had just released its “Global Age Watch Index, 2013,” a ranking of countries on the basis of quality of life for older people. HelpAge has done important analysis on income strategies actually used by people as they age, and it knows that these strategies are more diverse and creative than stereotypes might suggest. CFI and HelpAge will work together to dig deeper into the financial services needs related to aging and preparation for later life. We will also look at the financial barriers older clients face, whether these are physical limitations (related to acquired disabilities), policies (such as arbitrary age cut-offs), or susceptibility to fraud and abuse. We will focus this research in Latin America. We are convinced that the life-course lens on financial inclusion will reveal a wide range of opportunities to advance inclusion.

“On-Ramps” to Inclusion

At the Global Forum we heard the term “on-ramp” from so many directions we got dizzy. Everyone there seemed to have a theory about which product is the best on-ramp to draw people into the financial system. Finding good on-ramps is important for fulfilling one of our core tenets – that genuine inclusion requires active use of a range of financial services. A person starts with an on-ramp product, and moves on to a more complete set of services – in theory, at least. But what we know about the transition from informal to formal financial services suggests that many first products may not lead to second and third products, at least not automatically or immediately. The large number of dormant and low-use bank accounts throughout the world is evidence that this is true. Many people open accounts for a single purpose (often to receive a salary or benefit payment) and cash out all funds immediately, carrying on in the cash economy as before.

So, which entry products are more effective in leading to a range of services? Savings accounts? Mobile money? In-store consumer credit? Bill pay? Government-to-person payments? We’ve heard all of them heralded as on-ramps, but it’s unclear which work best. And how can on-ramps be designed with steps toward second and third products more clearly in mind? We are interested in exploring this question and are hopeful that we will be able to find good quantitative data that helps us lay out the paths people follow toward inclusion.

Massive Application of Behavioral Insights

At the Global Forum, Sendhil Mullainathan’s talk on human behavior under conditions of scarcity generated a flurry of “Aha!” moments. We all saw how time and money scarcity can lead to short-term tunnel vision and distorted decisions, whether one is an overcommitted professional or an impoverished farmer. Behavioral economists like Mullainathan have generated important insights that are directly applicable to the design and delivery of financial services. But with the exception of a few applied experiments, these insights have not deeply penetrated the culture of financial service providers and their product designers. We would like to understand more about why this has not yet happened, and to identify ways to speed up the process. Behavioral insights often speak directly to the process of developing financial capability, and this may be the focus area for CFI. Our first step in this direction will be a small convening in May in Colombia, where a great many experiments in financial capability building are taking place.

Finally, monitoring progress and momentum will be a continuing priority for FI2020. We are only too aware that while at the time of the Global Forum there were 86 months until our full-inclusion target date of December 2020, today there are only 81 months in the countdown. We will be working this year to document the progress toward inclusion around the world, with a special focus on the ten Roadmap Principles that embody the main recommendations coming out of the Global Forum. Look for our report on progress early next year. Meanwhile, if you are taking bold steps toward financial inclusion, please let us know. We’d love to highlight your achievements.

Elisabeth Rhyne is the managing director of the Center for Financial Inclusion at Accion