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Financial Inclusion on the Rise, But Gaps Remain

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Financial inclusion is on the rise globally, accelerated by mobile phones and the internet, but gains have been uneven across countries. A new World Bank report on the use of financial services also finds that men remain more likely than women to have an account.

Globally, 69 percent of adults – 3.8 billion people – now have an account at a bank or mobile money provider, a crucial step in escaping poverty.  This is up from 62 percent in 2014 and just 51 percent in 2011. From 2014 to 2017, 515 million adults obtained an account, and 1.2 billion have done so since 2011, according to the Global Findex database. While in some economies account ownership has surged, progress has been slower elsewhere, often held back by large disparities between men and women and between the rich and poor. The gap between men and women in developing economies remains unchanged since 2011, at 9 percentage points.

The Global Findex, a wide-ranging data set on how people in 144 economies use financial services, was produced by the World Bank with funding from the Bill & Melinda Gates Foundation and in collaboration with Gallup, Inc.

“In the past few years, we have seen great strides around the world in connecting people to formal financial services,” World Bank Group President Jim Yong Kim said. “Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency. Having access to financial services is a critical step towards reducing both poverty and inequality, and new data on mobile phone ownership and internet access show unprecedented opportunities to use technology to achieve universal financial inclusion.”

Download The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution

There has been a significant increase in the use of mobile phones and the internet to conduct financial transactions. Between 2014 and 2017, this has contributed to a rise in the share of account owners sending or receiving payments digitally from 67 percent to 76 percent globally, and in the developing world from 57 percent to 70 percent.

 “The Global Findex shows great progress for financial access–and also great opportunities for policymakers and the private sector to increase usage and to expand inclusion among women, farmers and the poor,” H.M. Queen Máxima of the Netherlands, the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, said. “Digital financial services were the key to our recent progress and will continue to be essential as we seek to achieve universal financial inclusion.”

Globally, 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services. Digital technology could take advantage of existing cash transactions to bring people into the financial system, the report finds. For example, paying government wages, pensions, and social benefits directly into accounts could bring formal financial services to up to 100 million more adults globally, including 95 million in developing economies. There are other opportunities to increase account ownership and use through digital payments: more than 200 million unbanked adults who work in the private sector are paid in cash only, as are more than 200 million who receive agricultural payments.

“We already know a lot about how to make sure women have equal access to financial services that can change their lives,” Melinda Gates, Co-Chair of the Bill & Melinda Gates Foundation, said. “When the government deposits social welfare payments or other subsidies directly into women’s digital bank accounts, the impact is amazing. Women gain decision-making power in their homes, and with more financial tools at their disposal they invest in their families’ prosperity and help drive broad economic growth.”

This edition of the Global Findex database includes updated indicators on access to and use of formal and informal financial services.  It adds data on the use of financial technology, including mobile phones and the internet to conduct financial transactions, and is based on over 150,000 interviews around the world. The database has been published every three years since 2011.

“The Global Findex database has become a mainstay of global efforts to promote financial inclusion,” World Bank Development Research Group Director Asli Demirgüç-Kunt said. “The data offer a wealth of information for development practitioners, policymakers and scholars, and are helping track progress toward the World Bank Group goal of Universal Financial Access by 2020 and the United Nations Sustainable Development Goals.”

Regional Overviews

In Sub-Saharan Africa, mobile money drove financial inclusion. While the share of adults with a financial institution account remained flat, the share with a mobile money account almost doubled, to 21 percent. Since 2014, mobile money accounts have spread from East Africa to West Africa and beyond. The region is home to all eight economies where 20 percent or more of adults use only a mobile money account: Burkina Faso, Côte d’Ivoire, Gabon, Kenya, Senegal, Tanzania, Uganda, and Zimbabwe. Opportunities abound to increase account ownership: up to 95 million unbanked adults in the region receive cash payments for agricultural products, and roughly 65 million save using semiformal methods.

In East Asia and the Pacific, the use of digital financial transactions grew even as account ownership stagnated. Today, 71 percent of adults have an account, little changed from 2014. An exception is Indonesia, where the share with an account rose by 13 percentage points to 49 percent. Gender inequality is low: men and women are equally likely to have an account in Cambodia, Indonesia, Myanmar, and Vietnam. Digital financial transactions have accelerated especially in China, where the share of account owners using the internet to pay bills or buy things more than doubled—to 57 percent. Digital technology could be leveraged to further increase account use: 405 million account owners in the region pay utility bills in cash, though 95 percent of them have a mobile phone.

In Europe and Central Asia, account ownership rose from 58 percent of adults in 2014 to 65 percent in 2017. Digital government payments of wages, pensions, and social benefits helped drive that increase. Among those with an account, 17 percent opened their first one to receive government payments. The share of adults making or receiving digital payments jumped by 14 percentage points to 60 percent. Digitizing all public pension payments could reduce the number of unbanked adults by up to 20 million.

In Latin America and the Caribbean, wide access to digital technology could enable rapid growth in financial technology use: 55 percent of adults own a mobile phone and have access to the internet, 15 percentage points more than the developing world average. Since 2014, the share of adults making or receiving digital payments has risen by about 8 percentage points or more in such economies as Bolivia, Brazil, Colombia, Haiti, and Peru. About 20 percent adults with an account use mobile or the internet to make a transaction through an account in Argentina, Brazil, and Costa Rica. By digitizing cash wage payments, businesses could expand account ownership to up to 30 million unbanked adults—almost 90 percent of whom have a mobile phone.

In the Middle East and North Africa, opportunities to increase financial inclusion are particularly strong among women. Today 52 percent of men but only 35 percent of women have an account, the largest gender gap of any region. Relatively high mobile phone ownership offers an avenue for expanding financial inclusion: among the unbanked, 86 percent of men and 75 percent of women have a mobile phone. Up to 20 million unbanked adults in the region send or receive domestic remittances using cash or an over-the-counter service, including 7 million in the Arab Republic of Egypt.

In South Asia, the share of adults with an account rose by 23 percentage points, to 70 percent. Progress was driven by India, where a government policy to increase financial inclusion through biometric identification pushed the share with an account up to 80 percent, with big gains among women and poorer adults. Excluding India, regional account ownership still rose by 12 percentage points—but men often benefited more than women. In Bangladesh, the share with an account rose by 10 percentage points among women while nearly doubling among men. Regionwide, digitizing payments for agricultural products could reduce the number of unbanked adults by roughly 40 million.

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Economic Diversification Away from Oil is Crucial for the Republic of Congo

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Economic diversification away from oil is crucial for reversing recent economic setbacks in the Republic of Congo and put the country on a pathway to long-term prosperity, says the World Bank in its latest Country Economic Memorandum report on the country.

The cost of over-reliance on oil has been painfully apparent in the past decade. A seven-year recession, induced by the end of the last oil-boom cycle, has led to a dramatic drop in income per capita, shrunk the size of the economy and weakened long-term growth prospects. While oil prices have surged more recently, returning Congo’s economy to growth in 2022, the current development model is unlikely to deliver sustainable economic growth and productive jobs going forward.

Attaining sustainable development in Congo urgently requires efforts to diversify national assets, focusing on stronger institutions, development of human and physical capital, and a more balanced exploitation of natural resources, says the report, titled Congo’s Road to Prosperity: Building Foundations for Economic Diversification.

“Congo’s oil-driven growth model has run its course. In order to achieve its aspiration for a more diversified and inclusive model, it is crucial for Congo to strengthen its policy ambition and accelerate efforts to transition to a people-centered, diversified economy,” said Korotoumou Ouattara, World Bank Resident Representative for the Republic of Congo.

The report highlights the urgency of diversification actions. Congo’s oil production is expected to decline in the medium term due to the depletion of oil reserves and reduced external demand from the global transition to a low-carbon economy. While oil accounts for 40% of GDP, the sector employs only a fraction of the country’s workforce, with three-quarters of Congolese employed in the informal sector. Underinvestment in health, education, and physical infrastructure, as well as weak government institutions underscore the limits of fossil fuel-driven growth and the importance of economic diversification.

It identifies ways in which Congo can achieve its economic diversification objectives and recommends policy reforms and investments in the following priority areas:

  • Remove barriers to competition by curbing state-owned enterprises’ market dominance, encouraging private sector participation in the electricity and telecommunications sectors, and modernizing competition law and enforcement capacity.
  • Accelerate digital transformation by enabling private sector participation, developing regulatory and legal support for digital financial services and facilitating digital technology adoption, and building digital skills.
  • Improve the supply of reliable electricity by restoring profitability, invigorating regulation, and investing in transmission and distribution.
  • Enhance trade competitiveness and diversification by cutting tariffs, reviewing non-tariff measures, concluding regional trade negotiations, and strengthening local markets.
  • Improve logistics efficiency by scrutinizing public-private partnership contracts and adopting unified information technology for maritime trade.
  • Support ecotourism development by improving regulation and allocating funding to protect natural assets, strengthening regulatory and enforcement agencies, and expanding transport infrastructure and marketing.

“The recent oil price volatility is a strong reminder of the need for Congo to reduce its exposure to the boom-bust cycles of global commodity markets. Urgent policy actions to develop the non-oil sector, enable the private sector, and strengthen government institutions can help catalyze growth for a prosperous, resilient and sustainable future,” said Vincent Belinga, lead author of the report.

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Solar Mini Grids Could Sustainably Power 380 million People in Africa by 2030

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Solar mini grids can provide high-quality uninterrupted renewable electricity to underserved villages and communities across Sub-Saharan Africa and be the least-cost solution to close the energy access gap on the continent by 2030.

Climate action efforts can tap solar mini grids that offer a lower greenhouse gas emission alternative compared to diesel-fueled systems and kerosene-based appliances. The World Bank’s Mini Grids for Half a Billion People: Market Outlook and Handbook for Decision Makers notes that to realize the full potential of solar mini grids, governments and industry must work together to systematically identify mini grid opportunities, drive costs down, and overcome barriers to financing.

“Kenya has deployed mini grids to serve communities that are not connected to the main grid,” said Mr Davis Chirchir, Cabinet Secretary Ministry. “Currently we have about 62 mini grids that are fully operational and 28, which are under construction. We hope to deploy more mini grids to close the energy access gap and ensure universal access to electricity by 2030.”

In Sub-Saharan Africa, 568 million people still lack access to electricity. Globally, nearly 8 out of 10 people without electricity live in Africa. At the current rate of progress, 595 million Africans will remain unconnected in 2030.

“While Africa remains the least electrified continent, it also has the biggest potential for solar mini grid deployment,” said Gabriela Elizondo Azuela, Manager of the World Bank’s Energy Sector Management Assistance Program (ESMAP). “Solar mini grids can reach populations today that would otherwise wait years to be reached by the grid.  They have the potential to transform the power sector in Sub-Saharan Africa. Through World Bank operations and advice to governments, ESMAP is helping take mini grids from a niche to a mainstream solution.”

The deployment of solar mini grids has markedly accelerated in Sub-Saharan Africa, from around 500 installed in 2010 to more than 3,000 installed today, and a further 9,000 planned for development over the next few years. This is the result of falling costs of key components, the introduction of new digital solutions, a large and expanding cohort of highly capable mini grid developers and growing economies of scale. In Africa, mini grids are on track to provide power at lower cost than many utilities. The cost of electricity produced by mini grids could be as low as $0.20/kWh by 2030, making it the least-cost solution for more than 60 percent of the population.

Important progress has been made in several African countries to accelerate the deployment of mini grids. In Nigeria, for example, a market-driven approach to mini grid development under the World Bank-supported National Electrification Project has catalyzed the deployment of more than 100 new solar-powered mini grids. In several countries such as Ethiopia and Zambia, new regulations and policy directives are making mini grids more attractive for private sector investment. In Kenya, a combination of geospatial planning, favorable policies and regulations, and a robust business model based on public-private partnership is underpinning the World Bank-supported Kenya Off-Grid Solar Access Project, which is targeting almost 150 new mini grids in areas with low electricity access rates.

Further acceleration is needed, however, to meet Sustainable Development Goal 7 (SDG7). Powering 380 million people in Africa by 2030 will require the construction of more than 160,000 mini grids at a cumulative cost of $91 billion. At the current pace, only around 12,000 new mini grids serving 46 million people will be built by 2030 at a total investment cost of approximately $9 billion.

The World Bank has committed more than $1.4 billion to mini grids over the next seven years, through 38 projects in 29 countries. The investment plans of the World Bank’s portfolio include the deployment of 3,000 mini grids by 2029, with the expectation of bringing electricity to more than 13 million people. This investment commitment is expected to crowd in more than $1 billion of co-financing from private sector, government, and development partners. In countries where the World Bank has an investment commitment in mini grids, the Bank’s investment represents on average about 25 percent of the total investment in mini grids in each country from governments, the private sector, and development partners.

Produced by the World Bank’s Energy Sector Management Assistance Program (ESMAP), the book, the Mini Grids for Half a Billion People: Market Outlook and Handbook for Decision Makers, identifies five market drivers that would help the mini grid sector achieve its full market and development potential:

  1. Reducing the cost of electricity from solar hybrid mini grids to $0.20/kWh by 2030, which would put life-changing power in the hands of half a billion people for just $10 per month.
  2. Increasing the pace of deployment to 2,000 mini grids per country per year, by building portfolios of modern mini grids instead of one-off projects.
  3. Providing reliable electricity service to customers and communities would generate the demand for 3 million income-generating appliances and machines and expand services at 200,000 schools and clinics.
  4. Leveraging development partner funding and government investment to “crowd in” private-sector finance, potentially raising $127 billion in cumulative investment from all sources for mini grids by 2030.
  5. Establishing enabling mini grid business environments in key access-deficit countries through light-handed and adaptive regulations, supportive policies, and reductions in bureaucratic red tape.

The handbook is the World Bank’s most comprehensive and authoritative publication on mini grids to date.

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Global growth forecast to slow to 1.9% in 2023

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Senior UN economists warned on Wednesday that intersecting crises are likely to add further damage to the global economy, with growth set to slow from three per cent in 2022 to 1.9 per cent this year.This will be one of the lowest growth rates in recent decades, apart from during the 2007-8 financial crisis and the height of the COVID-19 pandemic.

“In most countries we expect that private consumption and investment will weaken due to inflation and higher interest rates”, said Ingo Pitterle, Senior Economist at the UN Department of Economic and Social Affairs (UNDESA). “Several countries will see a mild recession before growth is forecast to pick up in the second half of this year and into 2024”.

The findings come amid the backdrop of the pandemic, the war in Ukraine and resulting food and energy crises, surging inflation, debt tightening, as well as the climate emergency. 

In the near term, the economic outlook is gloomy and uncertain with global growth forecast to moderately pick up to 2.7 per cent in 2024.

However, this is highly dependent on the pace and sequence of further monetary tightening – rising interest rates – the consequences of the war in Ukraine, and the possibility of further supply-chain disruptions.

Stronger fiscal measures needed 

The report warns that the findings also threaten the achievement of the 17 Sustainable Development Goals (SDGs).

This is not the time for short-term thinking or knee-jerk fiscal austerity that exacerbates inequality, increases suffering and could put the SDGs farther out of reach. These unprecedented times demand unprecedented action,” said António Guterres, UN Secretary-General. 

“This action includes a transformative SDG stimulus package, generated through the collective and concerted efforts of all stakeholders,” he added.

Gloomy economic outlook 

Both developed and developing countries are threatened with the prospects of recession during this year, according to the report.

Growth momentum significantly weakened in the United States, the European Union and other developed economies in 2022. This adversely impacted the rest of the global economy in multiple ways.

Tightening global financial conditions coupled with a strong dollar, exacerbated fiscal and debt vulnerabilities in developing countries. 

The analysis found that over 85 per cent of central banks worldwide tightened monetary policy and raised interest rates in quick succession since late 2021, to tame inflationary pressures and avoid a recession. 

Global inflation which reached a multi-decade high of about 9 per cent in 2022, is projected to ease but remain elevated at 6.5 per cent in 2023.

Weaker job recovery, rising poverty

The report found that most developing countries saw a slower job recovery in 2022 and continue to face relatively high levels of unemployment. 

Disproportionate losses in women’s employment during the initial phase of the pandemic have not been fully reversed, with improvements mainly arising from a recovery in the informal sector.

Slower growth, coupled with elevated inflation and mounting debt vulnerabilities, threatens to further set back hard-won achievements in sustainable development, it warns.

Needs soaring

DESA points out that already in 2022, the number of people facing acute food insecurity had more than doubled compared to 2019, reaching almost 350 million

A prolonged period of economic weakness and slow income growth would not only hamper poverty eradication, but also constrain countries’ ability to invest in the SDGs more broadly, it states.

“The global community needs to step up joint efforts to avert human suffering and support an inclusive and sustainable future for all,” said Li Junhua, United Nations Under-Secretary-General for DESA.

International cooperation key

The report calls for governments to avoid fiscal austerity, which would stifle growth and disproportionately affect the most vulnerable groups, as well as hinder progress in gender equality and development prospects, for generations.

It calls for reallocation and reprioritization in public spending policy, through direct interventions that will create jobs and reinvigorate growth. 

This will require strengthening social protection systems and ensuring continued support through targeted and temporary subsidies, cash transfers, and discounts on utility bills, and can be complemented with reductions in consumption taxes or customs duties, it states.

Investing in people

The report points to strategic public investments in education, health, digital infrastructure, new technologies and climate change mitigation and adaptation to achieve large social returns, accelerate productivity growth, and strengthen resilience to economic, social and environmental shocks.

It estimates that additional SDG financing needs in developing countries, amount to several trillion dollars per year. 

Urgent stronger international commitment is urgently needed to expand access to emergency financial assistance; restructure and reduce debt burdens across developing countries; and scale up SDG financing, the report warns.

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