Bringing smart policies to life The Role of Financial Inclusion on Economic Growth: Challenges and...

Bringing smart policies to life

The Role of Financial Inclusion on Economic Growth: Challenges and Perspectives

May 17, 2015


Executive Director

“Financial inclusion can be a powerful agent for strong and inclusive growth by empowering individuals and families to cultivate economic opportunities.”


Executive Director

—Christine Lagarde, Managing Director, IMF


What we mostly know….


GDP per capita (USD)

Access indicator

Composite Access Indicator vs. GDP/capita

Source: Demirgüç-Kunt, Beck, and Honohan (2008); World Bank “Finance for All” access data; World Bank World Development Indicators).

Countries’ level of financial inclusion positively correlated (0.55) with

GDP/capita


A World Bank analysis of Mexico’s drive to increase financial inclusion shows…

6

Financial inclusion has made a difference

10% increase in financial inclusion

leads to

Source: World Bank – “The Economic Impact of Banking the Unbanked: Evidence from Mexico”

5% increase in new businesses

7% increase in employment

3% increase in GDP


7Source: Innovations for Poverty Action: Prina, S. 2013. “”Banking the Poor via Savings Accounts: Evidence from a Field Experiment.” Working Paper , Brune, L., J. Goldberg, X. Giné, D. Yang. 2013. “Commitments to Save: A Field Experiment in Rural Malawi.” Working paper

Financial inclusion has made a difference

IPA analyses show:


Executive Director

Improving access to Finance for SMEs supports job creation and employment

Relieve Access to Finance

Constraints

Entrepreneurship Capital

Investments Risk

ManagementIndirect Effects

Job Creation Poverty Reduction

A sample of 100 MSMEs that had obtained loans from Sri Lanka’s largest private bank created 2,650 permanent jobs between 2009 and 2012, showed an annual job growth rate of 12%. It was estimated that they may have created between 140,000 and 340,000 jobs over three years. The study estimated that between 10-31 jobs were created for every $100,000 of loans provided to MSMEs.

Source: International Finance Corporation, IFC Jobs Study: Assessing Private Sector Contributions to Job Creation and Poverty Reduction (2013); Global Partnership for Financial Inclusion, SME Finance: New Findings, Trends and G20/GPFI Progress (2015)


What is less known to us…


Percentage of adults with formal accounts (ppt) in 2014

GDP/ capita in 2014 (%)

Financial inclusion and GDP/capita

Source: Data from World Bank Global Findex, compiled by AFI

0 10 20 30 40 50 60 70 80 90 1000

2000

4000

6000

8000

10000

12000

14000

16000N developing countries = 94

Countries’ level of financial inclusion is positively correlated (0.6) with

GDP/capita

Financial inclusion and GDP/capita growth

Countries’ level of financial inclusion appear to be negatively correlated (-0.13) with

GDP/capita growth

0 10 20 30 40 50 60 70 80 90 100

-30

-20

-10

0

10

20

f(x) = − 0.0364446105903906 x + 3.55084572546694R² = 0.0188856472821667

GDP/capita growth in 2014 (yoy, %)

0 5 10 15 20 25 30 35 40 45 50

-30

-20

-10

0

10

20

f(x) = − 0.0360724226952689 x + 4.11979966797028R² = 0.00709081718020399 50 55 60 65 70 75 80 85 90 95 100

-30-25-20-15-10

-505

1015

f(x) = 0.217180358792996 x − 15.2192741737291R² = 0.163008854058113

GDP/capita growth in 2014 (yoy, %) GDP/capita growth in 2014 (yoy, %)

However, GDP/capita growth is positively correlated with the level of financial inclusion for countries with level of financial inclusion above 50%.


Financial inclusion and growth

Some correlation exists between financial inclusion and change in GDP in SADC countries.

FI % Change GDP % ChangeAngola -26.6% 19.3%Botswana 62.4% -3.8%DRC 194.6% 26.5%Malawi -2.4% -34.2%Mauritius 2.6% 6.0%Tanzania 9.8% 31.0%Zambia 46.3% 13.0%Zimbabwe -56.7% 23.1%South Africa 28.4% -12.1%

Source: World Bank Global Financial Inclusion Database, 2011 & 2014; World Bank Data Catalogue, 2011 & 2013. No Findex data available for Lesotho, Mozambique, Namibia, Swaziland, Seychelles.


Member engagement and financial inclusion

Source: Data from World Bank Global Findex, compiled by AFI; AFI Member Engagement Index 2014

-20 -10 0 10 20 30 400.5

1.5

2.5

3.5

The increase in financial inclusion is positively correlated (0.35) with members’ level of engagement with AFI

AFI Member engagement index

Increase in percentage of adults with formal accounts (ppt)

N AFI members = 65*Cambodia, Mauritius N/A


Maya Declaration commitments and financial inclusion

Source: Data from World Bank Global Findex, compiled by AFI; AFI Maya Declaration Report 2014

AFI members that have adopted Maya Declaration increased financial inclusion by 9.5 ppts, compared to 8.4 ppts for AFI members without Maya Declaration

Increase in % of adults with accounts from 2011-2014 (ppt)

Median0

5

10 9.58.9

Adopted Maya declaration No Maya Declaration

N Maya = 48N No Maya = 42


Measurable targets and financial inclusion


Median0

4

8

12

1613.4

8.5

Measurable targets No targets

AFI members with measurable targets increased financial inclusion by 13.4 ppts, compared to 8.5 ppts for those without measurable targets


N members targets = 13N members no targets = 16


National strategies and financial inclusion

Median0

4

8

12

16

10.910.1

National strat. No national strat.

AFI members with national strategies increased financial inclusion by 10.9 ppts, compared to 10.1 ppts for those without national strategies


N members with strat. = 8N members without strat = 20*Angola N/A



Executive Director

Financial Inclusion in Mozambique

Commitment to develop

national financial inclusion strategy

Strategy published by Council

of Ministers

Update strategy to

include quantifiable

targets

On track to increase financial

inclusion to 25% by 2019

2012 2013 2014

Median0

4

8

12

1612.8

8.1

E-money No E-money

AFI members with e-money increased financial inclusion by 12.8 ppts, compared to 8.1 ppts for those without e-money

Increase in % of adults with accounts 2011-2014

Median0

4

8

12 10.68.1

Agent banking No Agent banking

AFI members with agent banking increased financial inclusion by 10.6 ppts, compared to 8.1 ppts for those without agent banking

Increase in % of adults with formal accounts 2011-2014

Median0

4

8

12

16

8.5

14.0

Tiered KYC No Tiered KYC

AFI members with tiered KYC increased financial inclusion by 8.5, compared to 14.0 for those without tiered KYC

Median0

4

8

12 10.6

4.4

Financial literacy No financial literacy

AFI members with financial literacy increased financial inclusion by 10.6 ppts, compared to 4.4 ppts for those without financial literacy

Increase in percentage of adults with formal accounts from 2011-2014

Increase in % of adults with formal accounts 2011-2014

Policy interventions and financial inclusion


Financial inclusion growth

Source: World Bank Global Financial Inclusion Database, 2011 & 2014; World Bank Data Catalogue, 2011 & 2013. No Findex data available for Lesotho, Mozambique, Namibia, Swaziland, Seychelles.

Of the five countries with the largest financial inclusion increase in percentage of population included, four of them are AFI members:

Kenya: 32.3%Uganda: 24%El Salvador: 23%Tanzania: 22.5%


Digital delivery channels making savings products more accessible: M-Shwari/Kenya

20


Dramatic Mobile Money growth: Tanzania

Source: Bank of Tanzania

Mid-2014:

12.3 million active mobile money accounts….

reaching 55% of the population

…..via 138,000 agents….


Financial inclusion becoming part of regulators’ mandate

• Financial inclusion is no longer only a development concern but a cornerstone of economic development framework and model

• Financial inclusion is a policy goal complementary to stability, integrity and consumer protection

• Financial inclusion is understood in a broad framework including access, usage and quality of a range of financial services.

No. of Countrie

s

Have dedicated financial inclusion strategy 31

Created a dedicated financial inclusion unit 22

22


Is financial inclusion a mandated objective for your institution?

Source: GPF 2013 electronic voting results for the session, Driving Policies for Optimal Impact

30%

19%

46%

5%

1%

Mandated objective

A mandated objective, but secondary to others

Not a mandated objective, but recognized as important

Not recognized as an objective

Other


SADC and financial inclusion

“Financial inclusion is no longer something nice to do, but is now an essential part of the global economic development agenda. It is a public policy issue that regulators cannot shy away from”

Professor Njuguna Ndung’u, Former Governor CB Kenya and AFI Chair,

September 2011


Executive Director“We recognize the critical importance of

financial inclusion for inclusive growth and development that places shared prosperity at the center of development in developing and emerging economies. We concur policy and regulatory bodies must include financial inclusion in their mandate.”

—Dili Consensus on Financial Inclusion in the Pacific Islands, 8 May 2015

Financial inclusion becoming part of regulators’ mandate


Effective financial inclusion policy reforms

Improved Knowledge & Institutional Capacity

High-level Commitme

nt

National & Global Policy Coordination

National Progress

Maya Declaration

Capacity Building

Grants Working GroupsKnowledge ExchangesPeer AdvisoryTrainings & WorkshopsJoint Learning ProgramsKnowledge Products

Global Advocacy

G20 GPFI

SSBs Peer Learning on Global Standards

Global Policy

Forum

Community & Partnership Building

Regional Initiatives

Public Private

Dialogue

Global Policy Forum

Online Member Zone

AFI Services


Executive Director“Financial inclusion is important to

the economy, it improves the welfare of the poor and contributes to financial stability”

—Professor Benno Ndulu, Governor, Bank of Tanzania, AFI Vice-ChairDecember 2013


[email protected]

Bringing smart policies to life The Role of Financial Inclusion on Economic Growth: Challenges and...

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