Why the World Bank states that financial inclusion is important for development?

Increased research reveals the many potential benefits of financial inclusion for development, particularly the use of digital financial services, mobile money services, payment cards and other financial applications (or fintech). Although the data is somewhat mixed, even studies that do not indicate positive results show that there are opportunities to improve results by placing particular attention to local needs.
The benefits of financial inclusion

The benefits of financial inclusion can be vast. For example, studies have shown that mobile banking that allows users to store and transfer funds via mobile phones can help improve income potential and reduce poverty. According to a study conducted in Kenya, access to mobile banking offers great benefits, especially for women. It has enabled women-led households to increase their savings by more than 20 percent; 185,000 women left agriculture and developed commercial or retail activities and helped reduce extreme poverty in female-led households by 22%.

Digital financial services can also help individuals manage financial risks by making it easier for them to raise money from distant friends and relatives in difficult times. In Kenya, researchers have found that mobile money users do not reduce consumption, while non-users and those with limited access to the mobile money network cut their food purchases by 7 to 10 percent.

Digital financial services can also reduce the cost of receiving payments. For example, as part of a five-month rescue program in Niger, beneficiaries were able to save an average of 20 hours of transportation and waiting time thanks to the monthly payment of government social services by mobile phone instead of cash.
Financial services can also help individuals accumulate savings and increase their purchases of necessities. After opening savings accounts, market sellers in Kenya, mostly women, saved at a faster pace and invested 60% more in their market activities. In Nepal, female-headed households spent 15% more on nutritious foods (meat and fish) and 20% more on education after opening free savings accounts. As for farmers in Malawi who deposited their income in savings accounts, they spent 13% more on farm equipment and increased their crops by 15%.

For governments, moving from cash to digital payments can help reduce corruption and improve efficiency. In India, pension fund leakage fell by 47% (2.8 percentage points) when payments were transferred by biometric smart cards rather than cash. In Niger, the distribution of social transfers by mobile phone instead of cash reduced the variable cost of benefit administration by 20%.

Key takeaways?
  • Financial services can help boost development. They help people escape poverty by facilitating investments in their health, education and businesses. They also facilitate the management of financial emergencies, including the loss of jobs or crop failures that can push families into crisis.
  • Many of the poor do not have financial services that offer important financial functions, such as bank accounts and digital payments. They depend on cash, which can introduce both safety and management concerns.
This is why the World Bank considers as essential priorities the promotion of financial inclusion through access and use of formal financial services.
Source: Demirgüç-Kunt, Asli, Leora Klapper, Dorothe Singer, Saniya Ansar, and Jake Hess, Global Findex Database 2017: Measuring Financial Inclusion and the Techno-Financial Revolution. Brochure Overview. Washington, DC: The World Bank. License: Creative Commons Attribution CC BY 3.0 IGO (Year 2017)