“Smart Power”

The interconnected nature of today’s world makes instability and conflict—even in distant corners of the world—a much greater threat to global security. And despite a rise in global wealth, we all know far too well that millions remain in dire poverty, beyond the rising tide of prosperity from globalization and 21st century progress.

We’ve seen it most vividly in the Arab Spring – triggered by the self-immolation of a microentrepreneur in Tunisia. Conflict in one nation can easily spill over the border, so it has become increasingly important that governments address systemic failures and foster inclusive policies that contribute to long-term growth and stability. Financial inclusion is a key component of this process.

When Secretary Clinton first laid out her vision of foreign policy, she described the need for “Smart Power.” Not just the hard power of our military forces, nor just the soft power of our diplomatic and development efforts. Smart Power is about addressing the basic necessities of people’s lives, understanding their challenges and empowering them to help themselves—much like we have been doing for decades through microfinance. This concept of Smart Power is at the heart of what proponents of financial inclusion are doing as we create more inclusive environments for growth and prosperity.

Part of Smart Power is what we call 21st century statecraft: the use of technology and innovative tools for the empowerment of people and the building or stabilizing of nations. It is a powerful concept when you look at the potential of technology to change our world. We are applying tech solutions to everything from natural disasters (with mobile mapping applications) to making governments more transparent and accountable. And of course, the US Government has worked with CGAP and others to advance mobile solutions for banking the unbanked so we can increase financial inclusion and economic empowerment.

This leads me to the relevance of financial inclusion to US foreign policy, which has evolved significantly in the past couple of years. We’ve come a long way just in terms of educating our diplomatic corps and shifting their understanding of financial services for the poor. We’ve done this first by introducing a monthly lecture on Financial Inclusion at the Foreign Service Institute, through which we provide our diplomats with the knowledge and tools to generate local political will for inclusive financial reforms. And we now have a State Department working group on financial inclusion, which meets regularly to report on the status of financial inclusion efforts at US embassies.

The second way financial inclusion has evolved is in our basic understanding of where it fits into the labyrinth of US foreign policy. Though it was born out of the microfinance and development communities, financial inclusion is also not just a development issue or a financial issue. It needs sustained political commitment. The US State Department is working with counterparts at USAID, Treasury, and others, to shift the discussion and awareness of financial inclusion from the silo of development professionals to the sphere of political and economic ministers. Because, as Secretary Clinton recently said, financial inclusion is not a side issue anymore. It is a political imperative that can contribute to overall economic growth and stability.

And third, there is a growing understanding of how financial inclusion isn’t just about empowering poor people—though that remains at the heart of our purpose. Ultimately, it also benefits service providers and the government as well. By bringing more people into the formal financial system, we can create more transparency and accountability in otherwise shrouded sectors of the economy. We can expand the tax base and help create efficiency in financial transactions. And we can foster more stability and continuity in fragile communities because people will be equipped to make better financial decisions.

Secretary Clinton is the first Secretary of State in our history to talk about financial inclusion—not just once, but regularly. With embassy personnel in over 100 countries around the world, the State Department is well-positioned to generate political will for the reforms necessary to realize financial inclusion. And thanks in large part of organizations like CGAP, we are helping to channel the expertise and resources that many governments need to make reforms happen.