Banking on Financial Inclusion

LIMA – The 2008 financial crisis highlighted the profound importance of finance for the globalized economy. But 2.5 billion people worldwide still lack access to formal banking services, credit facilities, or savings instruments. Bringing this largely ignored “missing market” into the formal financial system would enrich and strengthen the global economy.

The unbanked, who live primarily in developing countries, comprise nearly half of the world’s working-age population. In some countries, as much as 90% of the population lacks access to the formal financial system. This impedes their participation in the global economy by restricting their ability to buy goods and services, to borrow and save, or to invest in their future and that of their community and country.

Most global poverty-reduction efforts rely on “top-down” solutions – development-aid flows from rich to poor countries – that largely focus on education, food security, and disease management and prevention. But improving access to the formal financial sector is a unique challenge that cannot be tackled with foreign aid or government handouts.

In general, homegrown solutions have proven to be more effective than externally imposed policies. While a single, universal solution will not work, understanding factors that are common across countries provides a useful way forward. For example, populations worldwide are embracing technology, particularly mobile services. However, people throughout the developing world frequently lack proper identification, a fixed address, or a formal employer.