The World Bank Global Financial Inclusion (Global Findex) Database indicates that 2.5 billion adults globally—about half the total adult population—have no access to financial services delivered by regulated financial institutions. While account penetration is nearly universal in high-income economies, with 89 percent of adults reporting that they have an account at a formal financial institution, it is only 41 percent in developing economies.
Instead, those in developing economies must depend on informal mechanisms for loans, savings and to protect themselves against risks such as uneven cash flows, seasonal incomes and unplanned needs such as sickness. Due to a lack of access, the poor are forced to rely on moneylenders for credit at high rates of interest, they use substitutes such as livestock or gold as a form of savings, and in emergencies they often have to pawn assets.
Photo by Zakir Hossain Chowdhury / CGAP Photo Contest
The absence of financial inclusion can also contribute to slower economic growth and persistent income inequality. On the latter, it is women who are most disadvantaged in developing economies. While 46 percent of men have a formal account, only 37 percent of women do. Indeed, there is a persistent gender gap of 6 to 9 percentage points across income groups within developing economies. Allowing broad access to financial services, without price or non-price barriers to their use and offered in a responsible manner, have been shown to benefit poor people and other disadvantaged groups. The availability of capital will allow poor people to realize small business opportunities, with flow on welfare effects.
Financial inclusion also has many direct benefits to poor households that are using loans or savings to accelerate consumption, absorb shocks such as health issues, or make household investments in durable goods, home improvements or school fees (Collins, Morduch, Rutherford, and Ruthven 2009). Other financial products, such as insurance, can also help the poor manage risks. Research shows that financial inclusion can result in women’s economic empowerment. There is also macroeconomic evidence to show that economies with deeper financial intermediation tend to grow faster and reduce income inequality (Beck, Demirgüç-Kunt, and Levine 2007).