Trends and Challenges in Financial Inclusion

Jan 30th, 2015

Financial inclusion is a key component in reducing poverty in emerging markets. To successfully provide financial services to all, it important to reflect on the performance of financial products and services, their impact to date, and to identify trends that will affect the future of the sector. Eight trends that will impact financial inclusion in 2015 by John Ownes on AFI The use of digital financial services has been, and will continue to be, one of the main drivers for financial inclusion according to the Alliance for Financial Inclusion (AFI) Network. Looking forward into 2015, the AFI Network has identified trends related to technology and policy that will have a direct impact on advancing financial inclusion. The 8 trends AFI Network identified are:

  1. Agent Banking Expanding in Other Regions
  2. New Changes to National Retail Payment Laws and Regulations
  3. Governments Driving Electronic Payments
  4. Rise of New Financial Players
  5. New Digital Financial Service Partnerships
  6. Smartphone Penetration Rates Reaching a Tripping Point
  7. More Competitive Remittance Options
  8. Global Payment Providers Focusing on Financial Inclusion

We see startups addressing each of these areas. Which do you think will have the biggest impact? Making Change on a Mobile Handset by Zahra Niazi and Amber Davis on NextBillion Digital financial services are spreading rapidly in emerging markets. Today there are 203 million registered mobile money accounts worldwide and 256 mobile money services in operation, a 100% increase since 2011. As public and private investments flow into the space, investors are looking to understand the full potential of the digital revolution in financial services for the poor. There is more work to do to overcome key barriers, in order to fully take advantage of these services and to understand whether digital financial inclusion can truly make the poor better off. To address the need for information, Innovations for Poverty Action’s (IPA) Global Financial Inclusion Initiative is partnering with researchers and financial service providers to implement several evaluations on digital financial services. They currently have four ongoing studies in testing how these services can help people conduct transactions more securely, at lower costs, with different information on financial decisions and behaviors, and experience fewer social constraints. In Bangladesh, Rwanda, Afghanistan, and Kenya, IPA is exploring digital channels for salary payments, and mobile savings accounts. IPA hopes that results will uncover insights to improve the design of these products and determine how mobile platforms can effectively scale affordable financial services for the poor. AML/CFT: Balancing Regulation with Innovation by Thomas Abell and Vangelis Tsianaxi on CGAP Identify verification has been a critical challenge in offering financial services to poor populations. People typically lack formal identification documentation and to complicate matters, there is little regulatory guidance around customer verification in some countries. This creates barriers for providers hoping to serve low-income customers. To achieve significant gains in financial inclusion, financial institutions must take an innovative, sustainable, and adaptable approach to account for the needs of the unbanked populations. To address these challenges, CGAP conducted research to gain a better understanding of how processes for achieving anti-money laundering (AML) compliance affect how financial institutions can extend financial services to the poor. The key findings of the report were:

  • Mobile technology has dramatically increased the importance of customer verification as more people transact digitally and more funds flow through mobile channels.
  • It is possible to comply with AML regulations while fostering innovation with “tired KYC (Know Your Customer)” regulations.
  • National identification infrastructure drives significant KYC challenges and opportunities.
  • Data innovation is moving slower than the establishment of national ID systems
  • Measuring the cost of KYC is not a primary focus for most organizations

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