Thursday, Mar 02, 2023
Global Findex 2021: Key Takeaways for Financial Regulators and Supervisors
The Global Findex Database is an internationally recognized source of data on global access to financial services. In this podcast, the speakers discuss the key takeaways from The Global Findex 2021, including:
- Gaps in access to and usage of financial services by women;
- Roles of policymakers and regulators in balancing inclusion initiatives and consumer protection measures; and
- Insights into the behaviours that enable financial resilience.
Read their biographies here. Read the transcript here.
Read the Transcript:
Speaker:
Leora Klapper
Lead Economist, Development Economics, The World Bank
Host:
Ruth Dueck-Mbeba
Financial Inclusion Advisor, Toronto Centre
Publish Date:
March 1, 2023
Transcript:
Automation:
You are listening to a Toronto Centre podcast. Welcome. The goal of TC Podcasts is to spread the knowledge and accumulated experience of global leaders, experts, and world-renowned specialists in financial supervision and regulation. In each episode, we'll delve into some of today's most pressing issues as it relates to financial supervision and regulation, the financial crisis, climate change, financial inclusion, FinTech, and much more. Enjoy this episode.
Ruth Dueck-Mbeba:
Hello and welcome to this podcast. The Toronto Centre's mandate is to support financial regulators and supervisors in the responsibility of ensuring financial stability, while also fostering and enabling environment for financial inclusion to bring more people into the formal economy safely and responsibly. Today's podcast is the first of two that looks at the Global Findex 2021 survey results published last year. And this podcast will focus on the trends, risks, gaps, and key messages for financial policymakers, regulators, and supervisors. To set the stage, we're reminded that financial inclusion is a cornerstone of development. And since 2011, the Global Findex database has been the definitive source of data on global access to financial services, from payments to savings, and borrowing. The 2021 edition, based on nationally representative surveys of over 125,000 adults in 123 economies during the COVID-19 pandemic, contains updated indicators on access to and use of formal and informal financial services and digital payments, and offers insights into the behaviours that enable financial resilience. The data also identify gaps in access to and usage of financial services by women and poor adults.
A warm welcome today to our podcast guest, Dr. Leora Klapper. She is lead economist in the finance and private sector research team of the development research group at World Bank. She's also a founder of the Global Findex database, which measures how adults around the world save, borrow, make payments, and manage risk. Previously she worked at the board of Governors of the Federal Reserve System and at Salomon Smith Barney. Welcome, Leora.
Leora Klapper:
Thank you.
Ruth Dueck-Mbeba:
To kick off our conversation, let me start by asking you the first question. What are the key takeaways from the Global Findex 2021 and what drivers or factors have contributed to those achievements?
Leora Klapper:
Thank you for this opportunity to discuss the latest global Findex 2021 data. I'd like to highlight three thematic messages from this latest round of Global Findex data, each of which has some embedded components you refer to, such as the role of government policies or of mobile phones. So diving in, the first key theme is that the opportunities for growth and financial inclusion have shifted since 2017 from economies of scale to economies of scope. What that means is, financial inclusion has expanded at a global level every year. We've measured it since 2011. In fact, in the past decade, the share of adults worldwide with an account, whether it's with a brick and mortar institution, a microfinance institution or a FinTech like a mobile money provider, has grown from 51% of the global population to 76% as of 2021. Concurrently, the gender gap has narrowed In 2021, it was six percentage points down from nine percentage points, hoovered from many years.
All that is good news, but the dynamics driving that expansion have shifted. And here's where that scale versus scope story comes in between 2011 and 17, global progress and financial inclusion was really driven by major gains in two economies with massive populations, China and India. So both countries implemented government-led initiatives to drive financial inclusion and they were very successful. But since 2017, in contrast, the gains we saw in financial inclusion were driven by a far larger number of smaller economies. 34 separate countries grew their share of adults with a financial account by more than 10 percentage points. So the bottom line is that gains and financial inclusion have become far more diverse and widespread and led by a wider variety of enablers. And the second theme to highlight is related to this. First, as that certain economies saw their financial inclusion rates increase due to mobile money adoption.
Sub-Saharan Africa obviously has been a global leader in mobile money adoption since the late two thousands, and it continues to hold that status across the region. The share of adults with a financial account grew by 12 percentage points between 2017 and 2021. And the share of the mobile money account grew by the same rate, 12 percentage points, meaning that mobile money is single-handedly responsible for increasing access in the region. Furthermore, our data show that unlike in other regions or economies where people have mobile money accounts in addition to accounts for the bank or other traditional financial institution, in many economies in Sub-Saharan Africa, people adopt mobile money as their only account. And the message here is that mobile mobile money has become a significant contributor to financial inclusion as well as the financial equity. Since women in economies with a high percentage of mobile money, users are just as likely as men to have and use a mobile money account.
So the third big theme is that digital payments are the most used financial service and play a key role in the financial sector in two ways. First, the opportunity to receive a payment motivates a significant share of adults to open their first account. Specifically in developing countries, 37% of adults open their first account to receive either a government or private sector wage payments. That translates about half of all account owners and beyond opening account, we're also finding that digital payments are associated with broader usage or a very wide range of financial services because we can see from the data that people who receive a payment of any kind, government payments or wage payments, a payment of a sale of agricultural goods or domestic remittance from a friend or family member living elsewhere in the country, these people are more likely to also use other kinds of financial services, including making payments, storing money in accounts, saving and borrowing.
And of course, as you mentioned, we can't really talk about digital payment adoption without talking about the impact of Covid 19. We ask people who use digital payments to pay a merchant or pay utility bill whether they had had ever done so before the onset of the COVID 19 pandemic. And the data showed that a significant share of people who pay merchants to utility bills digitally said that they made their very first digital payments after the Covid 19 pandemic started. It varies by country and region, but overall, the rise in digital payment adoption as a result of COVID 19 provides another proof point to the impact of the pandemic on digital acceleration.
Ruth Dueck-Mbeba:
Those are fascinating reflections. What, if anything, Lara surprised you on the analytical results?
Leora Klapper:
So, both I and many of my colleagues were surprised how mobile money has evolved in Africa. So it started as a payment mechanism for person to person payments was quickly and overwhelmingly adopted as a safer and generally quicker way to send money home from the city to villages and is now being used for much, much more. So, for example, 40% of mobile money account owners in sub-Saharan Africa report using their account to save money for the future. This includes about 70% of account owners in Ghana, for example, with alternative methods to save or often riskier and more expensive.
Ruth Dueck-Mbeba:
And how are markets and providers responding to that shift and what are the opportunities represented for financial inclusion?
Leora Klapper:
So, I think one of the biggest opportunities lies in digitalizing payments. So despite the progress made of financial inclusion, 1.4 billion adults worldwide still do not have a financial account. Majority of them are women. A significant share of those unbanked adults still receive payments in cash. So for example, 5% of unbanked adults or about 85 million people worldwide receive cash-based government payments. 12% of unbanked adults receive private sector wages and cash. And 11% of unbanked adults in developing countries receive payments for agricultural goods and cash. These are all market segments. Who would in the case of farmers desperately need access to formal financial services and digitalizing some of these payments could drive significant increase in account adoption. It's also worth considering the reasons people give for not having an account. First thing to understand is that few people give just one reason. Most, like say the most common reason, is simply they don't have enough money for an account or the accounts are too expensive.
But beyond these income-related issues, unmet people also say that financial institutions are too far away or they don't have the documentation they need to open one such as a government issued ID. And so, speaking specifically about mobile money accounts, people say they don't have one because they don't have their own mobile phone. Connectivity might be an issue, highlighting the importance of public investment in digital infrastructure, plus the affordability of handsets. It's also important to remember that better access to national IT is critical for both the KYC AML requirements to purchase a SIM card, to have your own mobile phone, as well as to open an account.
Ruth Dueck-Mbeba:
So, as you reflect, Leora, on a decade now of FinTech surveys, what are your biggest takeaways on the importance and also the role of data and transparency for financial inclusion policy and regulation?
Leora Klapper:
So, looking at account ownership over time, we're seeing a general pattern of narrowing gender and income gaps. However, one gap that hasn't narrowed is a gap between adults with and without primary education. And this is again why it's so important for great , better data on financial inclusion. Just to take a step back, one of the reasons that we started collecting the data was that the data collected only by regulators from banks was sort of a mystery box of information. We didn't know how many women had any accounts, how many poor adults, and certainly how many less-educated adults. And we're finding that, for example, I think this is an important example, although the gender and income gaps have narrowed the gap between adults with or without primary education has widened over time. And that today the majority of unbanked adults with a primary education, majority of unbanked adults, have a primary education less suggesting that these adults might be illiterate or even enumerate.
And therefore, it's not surprising that we find over 40% of the world's unbanked on average saying they couldn't use a financial institution account without help. We also find that about 30% of mobile money account users need help from an agent or family member to use their account. And these facts all point to the vulnerability of the unbanked to misunderstanding terms or fees and financial fraud and abuse. And financial education is important, but the owners of good financial behavior shouldn't fall only on users. And this is where important role of regulators come in, that financial inclusion must be supported by strong enforced consumer protection of financial institutions, but also of agents and other financial service providers.
Ruth Dueck-Mbeba:
And without that data, there's no transparency on these insights. So that's a really useful observation. Leora, this year's Findex also featured questions on financial wellbeing and resilience. Why was that topic introduced and what were the findings there?
Leora Klapper:
So, when people think about financial inclusion, they obviously understand the relevance of financial account ownership and usage. But for people like me who care about economic development, the whole point of having an account is to enable people to take actions and improve their lives. So I want to see women with more decision-making power over their own money, being able to invest in the business, or pay for better housing or better food or schools for their children, and for the same women to feel safer because they don't have to walk 10 miles to collect the payment and then walk home with a lot of cash in their pocket. And so those aspects of wellbeing are part of a holistic view of financial inclusion, and we want to capture some of that in this latest round of Findex. So in terms of findings, one of the the big takeaways - that only about half of all adults in developing countries are financially resilient, that means only about 55% of them could access extra money.
It's equivalent to about 3,500 US dollars or 350 Indian rupees within 30 days in the event of emergency, like an accident, a flood or loss of income. And consistent with the findings on financial account ownership, women are less likely to be financially resilient than men. And so one of the reasons for that isthat woman are more likely to rely on friends and family for extra money in an emergency. The data also shows that friends and family are the least reliable source of extra money. And so these friends don't always have the money. Or if a woman asks a sister or a female friend to borrow that extra money, and that woman also doesn't have her own account about which she can make her own financial decisions, that friend isn't going to be able to access the cash. And so what's the most reliable source?
We find the savings. People who have savings accounts who would use them in an emergency are the most financially resilient, more so than people who say they would try to work extra hours or borrow to deal with an emergency. And this lack of resilience connects to another issue around wellbeing, which is financial worry. We ask people whether they worry about four common financial issues, specifically paying medical costs, paying school fees, paying everyday household expenses, or paying for old age. And almost everyone was worried about one of these issues. And many people worry about more than one. Most common issue in every world region that people are most likely to name as their biggest financial worry was medical costs. Perhaps no surprise given that our survey ran in 2021 in the midst of COVID-19. But for example, we also found in Sub-Saharan Africa in a dozen countries, the biggest financial worry were school fees. And here too unfortunately, many countries continue to charge fees which often prevent people from keeping their children in school. And so access to formal financial services, savings accounts, overdraft facilities, et cetera, can help people better manage their financial lives.
Ruth Dueck-Mbeba:
Thank you. Our audience today of financial regulators and supervisors think carefully and a lot about financial stability. What in your views are some of the new and emerging risks to identify, monitor, and mitigate, that might challenge financial stability in the trends that you observed?
Leora Klapper:
First and foremost, financial inclusion improves transparency in true transparency of deposits, but certainly of payments. However, an electronic payment system should be supported by an appropriate financial consumer protection framework. And without such a framework is the risk that recipients could lose trust in the system. And financial inclusion objectives may not be achieved. It's also important to recognize that digital payment mechanisms can have security breaches. For example, card numbers or account numbers can be stolen. Reliable payment systems have safeguards to protect against fraud and cyber attacks and emergency contingency plan in case of a breach. Governments and regulators should also ensure an enabling regulatory environment that encourages innovation and competition and work with the private sector to develop reliable infrastructure that can reach rural areas. They should also ensure robust and secure digital networks as well as interoperability and competition among providers. And to accomplish these goals, banking and telecom policies lead with intentionality to support digital financial services.
Ruth Dueck-Mbeba:
So looking ahead, what priorities does the next decade hold for us? As we face a lot of uncertainty, we face climate change, we face conflict in our world, there's upcoming and a lot of people are experiencing food crises. How might financial regulators better address that balancing act of both financial inclusion and financial stability in this uncertain time ahead of us?
Leora Klapper:
So the most common source of funds people cited, as I mentioned, the source to come up with extra money in the emergency is family and friends. However, it's become very salient over the past few years, especially during systemic shocks like a pandemic or increasing climate disasters, that social networks may not be a dependable source of money. So in other words, if a flood or hurricane damages an entire region, your neighbours are less able to help you as well. And so regulations that support broader access to formal accounts, especially by poor and rural adults, can help families have access to savings and appropriate credit in these times of needs.
Ruth Dueck-Mbeba:
Well, there is a lot of work left to do, but the insights that Findex provided us certainly offer some bright lights in what we see around us today. So thank you so much, Leora, for joining us today. And thank you to our listeners for signing in and listening to this podcast. Please find links to the Findex report summaries and the data sets in the show notes of this podcast. And join us again very soon when we need to discuss the Findex results for women's access to financial services and the insights and opportunities that analysis offers. Thank you again for listening today.