The End of Financial Marginalization Is in Sight: Here's the Roadmap

Abstract

innovations / volume 10, number 1-2 © 2015 Kathleen McGowan and Priya Jaisinghani We now have the tools and knowledge to radically reshape financial infrastructure to be ultra-inclusive, to spur the proliferation of diverse financial products that help the poor weather financial shocks and seize opportunities, to enable governments to operate more transparently and efficiently, and to foster new models of service delivery that can scale sustainably. Realizing this vision, however, will take deliberate, coordinated action by policymakers and regulators, and far more collaboration between the financial services industry and government than exists today. Above all, it will mean recognizing that ending “economic untouchability,” to quote Indian Prime Minister Modi, is an imperative for societies committed to shared prosperity and accountable governance. Today, some two billion people around the world manage their already precarious financial lives without the help of tools the world’s banked population uses to make retail purchases, buy a home, access health care, educate their children, and save for emergencies and retirement. Not surprisingly, most of this unbanked population live in developing economies, are disproportionately poorer than their countrymen, and more likely than not are women. Furthermore, despite recent World Bank data indicating that account ownership globally has increased over recent years, the types of financial products available often do not meet the urgent needs of the poor to even out highly variable incomes and reach longer-term goals.1 Thus, the oft-cited figure of two billion unbanked worldwide undoubtedly masks a far greater number of underbanked—the individuals and institutions poorly served by the financial products that are available to them. Until it becomes profitable to bank the poor, financial inclusion will remain illusory. Creating a market for commercially viable financial services relevant and affordable to the poor requires investing in shared infrastructure and aligning economic incentives so that serving the poor isn’t just possible but profitable. To make this happen, governments and their partners in the development community must redefine which