Figure I.1: Dimensions of Financial Inclusion

I. Defining and Measuring Financial Inclusion

Alliance for Financial Inclusion (AFI)

1. Introduction

Interest in and dedication to promoting financial inclusion has grown dramatically in recent years, as seen in the number of countries that committed to the Maya Declaration and the G-20 Financial Inclusion Action Plan, as well as strategies and targets set by individual governments1 . To track progress in achieving more inclusive financial systems and gauge their impact, a clear and unified definition of financial inclusion is needed and data collection efforts must be aligned with growth in financial inclusion commitments and programs. Rigorous, well-tailored data is instrumental to identify policy gaps, understand both served and underserved populations, and define priorities for action. While data availability is increasing, many international data sets only cover part of Africa, and African countries are yet to implement nationally-led surveys of financial inclusion at a larger scale. More can definitely be done to increase the coverage and scope of financial inclusion data on the continent. With a focus on Africa, this chapter provides a more comprehensive definition of financial inclusion while describing its main dimensions that require measurement, outlines existing sources of data on financial inclusion, and gives an overview of recent initiatives to develop global indicators on financial inclusion as well as options for national-level data collection.

2. Defining the Concept of Financial Inclusion: A Foundation for Measurement

Definitions and measurements of financial inclusion have evolved from classifying individuals and enterprises according to a dichotomous division as either included or not, to viewing financial inclusion as multi-dimensional. With the aim of defining a more complete concept of inclusion, the Financial Inclusion Data Working Group of the Alliance for Financial Inclusion (AFI

Figure I.1: Dimensions of Financial Inclusion

1. ACCESS 2. USAGE 3. QUALITY

Availability of formal, regulated financial services: Physical proximity Affordability Actual usage of financial services and products: Regularity Frequency Duration of time used Products are well tailored to client needs Appropriate segmentation to develop products for all income levels

Source: Adapted from Alliance for Financial Inclusion Financial Inclusion Data Working Group (2011).

FIDWG) agreed on three main dimensions of financial inclusion that provide the underpinning for data collection: access, usage and quality.2

The adoption of broader and multidimensional definition of financial inclusion is crucial in the sense that it helps to move beyond the often erroneous assumption that inclusion will inevitably be achieved by simply offering enough access points. Instead, a more complete understanding of financial inclusion should speak to how frequently clients use products, if the products are effectively meeting their needs, and if they are better off as a result. Therefore, as depicted in Figure I.1, defining and measuring usage and quality in addition to simple access would be very useful for analytical purposes. These three dimensions of financial inclusion are broad categories into which indicators can be grouped, without being restrictive. They simply provide a framework to guide policymakers in developing a sufficiently robust measurement strategy that reflects the multi-dimensional nature of financial inclusion. Within this framework, policymakers will still need to design a set of indicators appropriate to their needs and level of resources.

Although efforts to promote financial inclusion should strive to improve all three dimensions simultaneously, when setting priorities for measurement, a number of countries are now gathering information sequentially, assessing access first, usage second, and examining quality third. This is often because in most countries, data on the level of service provision is more easily obtained than usage and quality data. In Africa, many countries are now at the level of collecting mostly access and some usage data. However, in countries where the FinScope Surveys are carried out, usage and quality data may be more easily available than access data because of the surveys’ focus on these dimensions.

3. Overview of Available Data on Financial Inclusion

To better capture financial inclusion, it is crucial to start with fully analyzing and understanding the existing data. A number of institutions, mainly donor-funded, have invested significant resources in measurement of financial access and usage, globally and in Africa, with a particular focus on the supply side. Financial inclusion data has traditionally been separated into supply and demand-side information. Supply-side data comes from providers of financial services, while demand-side data involves interviews with end-users of products: individuals, households, and firms.3 Central Banks often collect some supply-side data as part of their supervision duties for regulated institutions, and this can be a good source of information at the national level. However, supply-side data provided by central banks or supervisory bodies on the number of accounts and Automated Teller Machines (ATMs) in a country is not detailed enough to provide information about how many people have accounts (due to multiple accounts held by some individuals) and how access varies by region, income level, and other variables. In some countries central bank data may not provide a useful level of granularity about financial access.