This presentation briefly discusses: - the role of financial inclusion in risk management for the poor and - what can be done to improve the situation

1. Financial Inclusion for Managing
Risks against Poverty & Shocks
Syed Sohail Javaad
July 23, 2014

2. 2
Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the Poor:
How the World's Poor Live on $2 a Day. Princeton University Press.
Exact reproduction from http://www.portfoliosofthepoor.com/pdf/Chapter1.pdf

3. What is Financial Inclusion?
3
• Enabling more and more people:
– To have a bank account for savings
– Easily send and receive money through formal
channels
– Have access to formal credit
– Have access to health insurance
– Carry less cash and use cards for making payments
– Be part of the formal economy

4. The Problem of Financial Inclusion?
4
• Adult population: About 4.8 billion*
• Financially Excluded: About 2.5 billion*
• More than half of world’s adult population is
financially excluded and lives on the fringe of existing
financial system
• A massive 72% of adults in developing countries
don’t have a bank account**
* Estimated using 2005 numbers from “Financial Access Initiative Note – October
2009” from www.financialaccess.org
** Kendall, J., Mylenko, N., & Ponce, A. (2010). Measuring Financial Access Around the
World. The World Bank, Financial and Private Sector Development. The World bank

5. 5
Source: Financial Access 2010: The State of Financial Inclusion Through the Crisis
By Consultative Group to Assist the Poor/The World Bank Group

6. Why do we need Financial Services /
Access for the Poor?
6
• Research has shown that if financial services and
reliable financial instruments are accessible to poor
people, they stand a better chance of improving their
lives *
• Financial access generally enables people to prepare
themselves for any shock or future need (for example,
by buying insurance or a savings instrument)
* Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the Poor:
How the World's Poor Live on $2 a Day. Princeton University Press

7. Reasons for Financial Exclusion
7
• Usually poverty, low income and low education are
citied as the biggest reasons
• Lack of developed financial Infrastructure especially
in low income countries*
• Expensive and financially infeasible for the formal
financial institutions to serve the poor
• Perception of the poor as “high risk customer
segment” by service providers (For example, banks
and insurance companies)
* Beck, T., Demirguc-Kunt, A., & Martinez Peria, M. (2005). Reaching Out: Access to
and Use of Banking Services Across Countries. The World Bank

8. How is the problem being addressed?
• By governments –
• Financial inclusion as an State objective
• Creation of friendly regulatory regimes
• By Multilateral Agencies –
• Allocating funds for projects
• Research Initiatives
• By Private sector –
• Mobile and branchless banking
8

9. What needs to be done?*
• Governments in developing countries may encourage
the use of information and payments technology for
providing less expensive financial services to the poor
• Service provider (especially banks and insurance
companies) can use innovative business models to while
provide services to the poor while still remaining
profitable
• Increased financial literacy among the poor so that they
have the knowledge to use formal financial services as
tools of effective risk management
9
* Based on author’s own research and understanding of the topic

10. 10