September 26, 2017

Vision of the Future: Financial Inclusion 2025

Written by Estello Lahayo, Thomas E Abell and James K. Hoover

This post originally appeared on the CGAP website. Reposted with permission.

It is 2025. Imagine that everyone around the world is using a broad range of affordable financial services that meet their various needs—full financial inclusion. This has contributed to a new wave of prosperity that is bringing greater economic and social progress. Financial services are central to the lives of everyone, allowing people to participate in the economy, access services, seize opportunities, build resilience, and pursue their dreams.

That’s one scenario; here are a few others.

In 2025, financial inclusion has become a victim of its own success. Providers are aggressively offering products and services that are not well suited for poor people. These products and services are actually harming them and adversely affecting their ability to participate in the economy and society— leading to further exclusion.

Or maybe, in response to new risks such as hacking and identity and data theft, governments have implemented policies that drastically dampen private-sector innovation and leave most people either excluded from financial services or poorly served.

Or maybe, the rise of social networks leads people to find new ways to engage with each other and to participate in the economy—all interactions, including financial ones, are conducted through these networks.
All of these scenarios are plausible. They could happen. Can we influence the outcomes?

Today, governments, development organizations, and private-sector players worldwide recognize the
importance of financial services for poor people. As a result, more people are gaining access to financial services. However, relatively few people in developing countries use these services. This may reflect the perception that financial services on offer are of limited value for customers. Low use leads to lower gains for providers, thus putting the sustainability of financial inclusion solutions into question.

Important challenges remain for our industry; financial inclusion is only a means to an end. A growing body of evidence shows that people who can access and use financial services are better able to support their livelihoods, improve their wellbeing, and better deal with risk. It also shows that financial access can improve the local economy (Cull, Ehrbeck, and Holle 2014).

Global development trends indicate that the number of people living in extreme poverty is likely to continue to decline as incomes continue to rise in many parts of the world. Globally, the wellbeing of individuals seems to be improving.1 Yet, inequality has become a new challenge. A majority of poor people work in the informal sector. This plays a vital role in economic growth, but many of these workers do not have social protection and job security. Over the next decade several major forces will fundamentally shape most countries’ economic, social, and political conditions, including financial services for the poor.

To get a good sense of what the future may hold for poor people and financial inclusion, CGAP organized a scenario thinking exercise that aimed to examine plausible, divergent futures (see Figure 1). We conducted four global workshops in Accra, Bangalore, London, and Washington, D.C., between October 2016 and February 2017. More than 100 thought leaders, innovators, development actors, and academics participated in these workshops. The goal was to generate possible future scenarios—not predictions—for financial inclusion, taking into account driving forces such as digital technologies, globalization, migration, and the changing world of work. In particular, participants explored the driving question: “In what ways will financial services influence inequality and economic participation for poor people by 2025?”

This Focus Note summarizes the insights gained through this exercise. It also identifies the main opportunities to ensure financial services better serve the needs of poor people in a rapidly evolving context for organizations working to advance financial inclusion.

Click on the image below for the full report.

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