Five Challenges to Reaching Universal Financial Access

Financial products must be adapted to women’s needs, whether it's providing women with valid ID cards, enabling them to open their own account or improving their financial literacy.  Photograph: World Bank Photo Collection

Two billion people worldwide still lack access to regulated financial services. Despite significant progress and the increased technical and financial resources devoted to financial inclusion, much work remains ahead.

There is broad consensus that access to a transaction account can help people better manage their life and plan for emergencies.

But financial access and the underlying financial infrastructure taken for granted in rich countries, such as savings accounts, debit cards or credit as well as the payment systems on which they operate, still aren’t available to many people in developing countries. This past September, I participated in the Global Policy Forum of the Alliance for Financial Inclusion (AFI) held in Mozambique.  This annual meeting convened policymakers, the private sector and other stakeholders to assume new commitments, discuss best practices and agree on the way forward.

I was impressed by rich discussions I had with AFI members and representatives of different institutions on successes and obstacles in expanding access to finance in their countries.

These hurdles can be distilled into five main challenges:

  1. Financial literacy and capability. Countries must develop financial literacy programs to ensure people can make sound financial decisions, select financial products, which best fit their needs, and know how to use related channels, such as ATMs or mobile banking.  Recent World Bank Group Financial Capability Surveys on Morocco and Mozambique, and studies on remittance services among migrants in France and Italy show that a lack of awareness prevents people from using  suitable financial products and services. Behavioral insights are leading to more effective – and lower cost – financial literacy efforts, which can improve uptake of new accounts and increase savings, including through tailored SMS texts.
  2. Valid identification documents. Providing people with a valid ID is essential to access financial services. Without a proper ID, it’s not possible to shift large payment flows like social benefit transfers and wages into transaction accounts. The process to obtain an ID card and to open an account needs to be streamlined. In countries where several ID documents are needed to open an account, financial inclusion efforts haven’t made as many inroads as in those countries where this process has been simplified.
  3. Consumer protection and regulation. While payment services like mobile money and e-money products can further expand financial access, it’s critical to establish secured and reliable platforms to protect data privacy and funds. To promote confidence in using electronic payments, it’s important to treat new customers fairly, adequately disclose key product information and establish safety and reliability standards to allow customers to make informed choices about products they select.
  4. Women and the rural poor. Women in developing countries are 20% less likely than men to have an account and 17% less likely to have borrowed from a formal financial institution in the past year. Financial institutions must adapt financial products to suit women’s needs. This effort can range from providing women with valid ID cards and enabling them to independently open an account to enhancing their ability to make basic financial decisions. The 2014 World Bank Group Financial Capability Survey in Morocco showed that women and people living in rural areas score significantly lower on various financial capability metrics (budgeting, coping with unforeseen events, etc.) compared to men and the urban population.  Overall, they tend to be less educated or less likely to be formally employed.
  5. Usefulness. Opening a transaction account is the first step, not the end goal. Transaction accounts must be useful and serve as a gateway to other financial products such as savings, credit and insurance. Some 355 million adults in developing countries who report having an account still remit money in cash or over-the-counter. Governments and the private sector can play a key role in accelerating usage by depositing wages into accounts versus paying cash.  For example, India’s Pradhan Mantri Jan-Dhan Yojana (PMJDY) initiative is shifting benefits, including for the LGP-fuel subsidies, into transaction accounts on a large scale, and has reportedly opened more than 170 million accounts.

To tackle these challenges, we need to work together.

In the last two years, the World Bank Group has committed more than $8 billion in financial support for financial access and inclusion and for developing national and regional financial infrastructure.

This past spring, the World Bank Group and a number of public and private-sector stakeholders committed to reaching 2 billion people in the next five years through the Universal Financial Access 2020 (UFA2020) initiative. The UFA2020 is focusing on 25 countries where 73% of the world’s unbanked population lives. However, we are eager to work with all countries where we can add value as a technical partner or provide critical financial support.

This global initiative complements the Maya Declaration that many AFI member countries committed to over the last four years.  More than 85% of the reduction in the global unbanked population between 2011 and 2014 came from AFI member countries — some 55% were from countries with a Maya Declaration commitment.

At the global level, the World Bank Group and the Committee of Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) have analyzed these challenges in the just released consultative report on Payment Aspects of Financial Inclusion, which will help us understand how payment systems and services promote access to and use of financial services.

The report will suggest key actions countries should take to advance access to transaction accounts. These actions will be crucial to making financial inclusion a reality, which will help reduce global poverty and boost shared prosperity.

Gloria Grandolini is senior director of the Finance and Markets Global Practice at the World Bank Group. Follow @WBG_Finance on Twitter and use #FinAccess2020 to read about World Bank Group's work on Financial Inclusion.

This article was first published in The Guardian on October 8, 2015.