Redefining Financial Inclusion By Adrienne Harris & Emma Macfarlane † with support from the Center on Finance, Law & Policy
Introduction “Financial inclusion in India is soaring,” reads a 2019 headline from the World Economic Forum.1 The article is rife with promising statistics. In just seven years, the number of Indian citizens holding a bank account increased from forty to eighty percent,2 providing what the author described as a “creditable achievement” for the country and one that addressed the “basics” of financial inclusion.3 If the principal requirement for financial inclusion is access to a bank account, then the author’s conclusion may be correct. But has the nation achieved real financial inclusion when close to half of these accounts are inactive?4 The article exposes one of the problems with our current definition of financial inclusion. Both governments and international organizations frequently use a check-the-box approach based on access instead of looking at affordability, suitability, or consumer preferences. Access to a bank account?5 Check. Have a debit card?6 Check. Financial inclusion satisfied. Reality is more nuanced. Twenty percent of account owners worldwide have never deposited or withdrawn money from a bank account in their name.7 Some rural populations in Sub-Saharan Africa may forgo the use of a bank account, but are active in investing and exchanging money on digital platforms.8 If financial needs are met via financial technology (fintech) apps and non-predatory alternative lenders, the absence of a bank account may not indicate exclusion from the financial system. Financial inclusion definitions serve as the foundation for national economic policies. Countries and banks use these definitions to create financial programs.9 Viewed in this light, the meaning of financial inclusion is more than an abstract concept. It has the potential to shape the very basis of our national (and international) economic policies. This article argues for a broader definition of financial inclusion than those currently proposed by international organizations working within the financial services space – a definition that is more comprehensive, more accurate, and more workable. Part I outlines the
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current definitions of financial inclusion that governments, central banks, and international organizations use today. Part II describes the weaknesses that exist within these definitions and why a new formulation is necessary. Part III briefly addresses the relationship between financial inclusion and financial health, and why both are worthwhile and interconnected pursuits. Finally, Part IV sets forth a proposal to redefine financial inclusion by drawing on the realities of the global financial frameworks, traditional and otherwise, that are in place today.
I. Defining Financial Inclusion Proposed definitions of financial inclusion run the gamut from the general to the specific. On one end of the spectrum are broad explanations. For example, the Organisation for Economic Cooperation and Development (OECD) endorses a definition of financial inclusion satisfied by, “affordable, timely and adequate access to regulated financial products and services and broadening their use by all segments of society.”10 Other institutions offer a narrower description of the term. The World Bank notes that the “first step” to financial inclusion for both individuals and businesses is having access to a “transaction account,” which thereby serves as a gateway to other financial services.11 The G20 Financial Indicators echo the World Bank’s approach: The G20 countries have endorsed nine factors as indices of financial inclusion.12 Of these nine factors, five focus on the number of accounts or branches of “commercial banks,” one on the “number of ATMs,” and one on the number of “registered mobile money agent outlets” (with each statistic showing the number per 100,000 adults).13 Only one of the nine factors is concerned with actual transactions completed by adults during the year.14 Although definitions vary, they usually reference access as a means to some socially desirable end. Many commentators, international institutions, and governments position financial inclusion as beginning with access to formal financial services.15 The desired end goal anticipated from such access ranges from the alleviation of poverty,16 to the improvement of economic develop-
