Financial Inclusion: Beyond Microfinance
Friday 28th January 2011 - 12:30pm - 2:00pm
Friday 28 January, 12.30 - 14.00
How do we establish new and scalable ways of providing key financial services to the underserved?
The following dimensions will be addressed:
- The recent controversy over microfinance
- The challenge of scaling new models and services
- Consumer protection and government regulation
- Mobile banking offers one of the most promising options for providing financial services to the world’s unbanked population.
- Saving money and processing remittances are among the biggest needs for financial services with underserved populations.
- Stringent regulation is likely to deter the banks and telecommunication businesses from promoting financial inclusion at a time when their participation is greatly needed.
- Nonetheless, government engagement and oversight can help improve protection for both lenders and creditors.
- Achieving economies of scale is one of the biggest challenges related to financial inclusion, and in the future, greater attention should be paid to extending credit to small and medium enterprises (SMEs).
- Financial inclusion requires not just access to banking services, but a broader, ecosystem-wide set of changes that often requires cultural shifts.
Almost three billion people in today’s world lack access to basic financial services, and extending banking to these individuals has the potential to transform economies and improve livelihoods. One of the most promising means of reaching this goal involves expanding mobile banking services such that mobile phones also become tools for saving money, transferring funds and accessing credit. There are already a number of promising examples of such initiatives worldwide, from Kenya to Pakistan.
Savings and remittances are among the biggest priorities for underserved populations. Access to savings accounts increases the ability of the world’s poor to build houses, pay for education and engage in basic commerce. Likewise, improving remittance processing would promote financial inclusion. In Haiti, for example, billions of dollars in remittance payments from the US have helped keep the struggling nation afloat. One way to extend banking to Haiti’s unbanked would be to allow Haitians to register mobile accounts with organizations that could process secure payments from US residents registered to a corresponding, mobile-phone based network.
Expansion of these services is not without risks, as the recent controversy surrounding excessive microfinance lending in India has demonstrated. Regulation can play a role in improving oversight and verifying financial information. However, it is unlikely that programmes such as the Grameen Bank would have reached such high levels of success if regulation had constrained its activities. In the absence of regulation, the responsibility falls to the microfinance and financial services industry to self-regulate. If these providers can effectively generate their own guidelines, they will be more likely to avoid stringent rules imposed from the outside.
One of the biggest challenges to improving financial inclusion is achieving economies of scale. Indonesia, for example, has thousands of microfinance organizations, but it lacks a wholesale financial entity to standardize systems and technological platforms. Without such an intermediary, microfinance remains a boutique industry and cannot reach the millions without access to banking. Focusing on SMEs could also greatly increase financial inclusion, but to date, microfinance services have not focused on this goal.
Achieving financial inclusion requires more than simply improving access to banking. Instead, an entire ecosystem must evolve to support such change. Women, who are often the focus of such programmes, must have greater legal protection and social equality. Likewise, increasing educational loans can transform the earning potential of a society, but employment opportunities must be in place to channel this potential.
Jon Fredrik Baksaas, President and Chief Executive Officer, Telenor Group, Norway
Geoff Davis, Chief Executive Officer, White Hat Ventures, USA; Young Global Leader
Anne Hastings, Managing Director, Fonkoze, Haiti; Social Entrepreneur
Neal Keny-Guyer, Chief Executive Officer, Mercy Corps, USA
Rachel Kyte, Vice-President, International Finance Corporation (IFC), Washington DC; Global Agenda Council on Emerging Multinationals
Vikram Pandit, Chief Executive Officer, Citi, USA
John Rwangombwa, Minister of Finance and Economic Planning of Rwanda
Nicholas D. Kristof, Columnist, The New York Times, USA
This summary was prepared by Mary Bridges. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.
Copyright 2011 World Economic Forum
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of the World Economic Forum.
Keywords: Financial inclusion, microfinance, telecommunications, financial services, education, developing nations
Jon Fredrik Baksaas
President and Chief Executive Officer, Telenor Group, Norway and Chair of the Governors for the Telecom industry for 2014
MSc in Business Administration, Norwegian School of Economics and Business Administration, Bergen; s...
Founder and Board Member, Fonkoze Financial Services, Haiti
1982, PhD, University of Virginia. 1981-96, consultant providing strategic management services to ex...
Chief Executive Officer, Mercy Corps, USA
BA in Public Policy and Relations, Duke; MA in Public and Private Management, Yale University. Socia...
- Vikram Pandit
Director, Perpetual Education Fund, USA
Degrees, Brigham Young and Harvard. Former: Chief Executive Officer, Unitus; Co-Founder, Unitus Equi...
Vice-President and Special Envoy, Climate Change, World Bank, Washington DC
BA in Politics and History, Univ. of London; MA in International Relations, Fletcher School of Law a...
Governor of the National Bank of Rwanda (NBR)
Studies in Accounting; Master's degree, Maastricht School of Management, Netherlands. 2004, Deputy D...
Nicholas D. Kristof
Columnist, The New York Times, USA
1981, BA (Hons), Harvard University; BA (Hons) and MA (Hons) in Law and Rhodes Scholar, University o...