In recent years there is broad agreement across government and industry actors on the need for global “Financial Inclusion” – the provision of financial services to the 2.5 billion persons worldwide regarded as “unbanked.” The reasons are clear and compelling. From a public policy perspective, it would lead to higher living standards and greater social equity. For the unbanked, it is an opportunity to for the first time safely store savings, pool risk via insurance, borrow money to pursue business opportunities and efficiently transfer funds. From a business perspective, financial inclusion is an opportunity to expand the financial services market and tap into opportunities for long term growth.
However, as much as there is alignment on the need and priority for financial inclusion, stakeholders hold multiple – often conflicting – views about what the opportunities are, which are the “winning” approaches, and the role different actors play in realizing such opportunities. Digital cash (often associated to branchless banking, mobile money) brings promising opportunities for financial inclusion, but successes have been difficult to extrapolate and sharing lessons across markets remains a challenge.
This Focus Note provides a framework that regulators, policy makers, financial service providers, donors, and investors can use to identify the most productive next steps in the markets they focus on. It suggests that countries can be broadly grouped into three market archetypes—distinguished by broad economic, demographic, and policy environment characteristics—that represent three different starting points in the journey to financially inclusive ecosystems. Branchless financial ecosystems, therefore, develop differently in these markets.
- In the Mobile Leapfrog market archetype, mobile network operators (MNOs) fill a banking infrastructure gap to increase the percentage of the population that has access to services.
- In a Convergence Battle market archetype, branchless banks and retailers fiercely compete for the same customer in urban areas, while the countryside remains underserved.
- In the Pervasive Social Banking market archetype, historical financial inclusion success achieved through social banking leads to regulations that heavily favor future social banking, leaving less room for innovation.
For each of these market archetypes, this paper suggests a distinct agenda that can help lead the market toward financial inclusion. We expect this thinking can help guide efforts to advance financial inclusion.