“By reducing vulnerability to economic shocks and boosting job creation, financial inclusion can be a key driver of poverty reduction and economic growth and at the same time contribute to promoting greater equality,” explains Beth Porter, policy adviser for financial inclusion at UNCDF.
In preparation for our 18th Microcredit Summit, the Campaign conducted a Listening Tour from December 2014 through February 2015. The Listening Tour was our time to listen — and your time to speak — on the issues that the microfinance and financial inclusion sector face and served two purposes. First, it was our hope to find out how our audience (you) felt about the World Bank’s goal of eradicating poverty by 2030, and equally important, we wished to consult you in identifying the topics that were most pressing and urgent.
We collected your feedback through an online survey and organized conversations with 27 leaders in the microfinance and financial inclusion sector. We heard from them on how financial inclusion can contribute to the goal of ending extreme poverty by 2030 and the role of microfinance in the post-2015 agenda. The results of this consultation will be reflected in the 2015 State of the Campaign Report, the 18th Microcredit Summit, and Campaign Commitments.
Below is a short excerpt from our conversation with Beth Porter, policy adviser for financial inclusion at the United Nations Capital Development Fund (UNCDF) in New York.
Q: What is the role of microfinance and financial inclusion in the post-Millennium Development Goals (MDGs)/ Sustainable Development Goals (SDGs) era?
Over the course of 2015, the Open Working Group, comprised of 30 member states, discussed the shape of the post-2015 agenda. The post-2015 agenda set out to build upon the Millennium Development Goals (MDGs, 2000-2015) and incorporate some of the broader global stewardship goals that came out of the Monterrey Consensus. To do so, they proposed a set of 17 goals and 169 targets (the MDGs had 8 goals with 10 targets each) to the UN General Assembly in September 2014 — a document which was adopted as a “zero draft.”
In 2015, member states began to consider the overarching vision for the Sustainable Development Goals (SDGs), examine more closely the goals and targets, set forth the means of implementation, and identify indicators. While such a large number of goals and targets are certainly unwieldy, many member states want to ensure that the SDGs are truly comprehensive and feel that further whittling them down would leave out important parts of the development agenda. So the targets are being examined to ensure that they are consistent with other global agreements and commitments and that are measurable, but the targets themselves have not, to date, been opened up for major changes or reduction in number.
Financial inclusion figures prominently amongst the targets. Financial Inclusion is achieved when individuals and enterprises have access to a wide range of financial services provided responsibly and at reasonable cost by diverse and sustainable institutions in a well-regulated environment. By reducing vulnerability to economic shocks and boosting job creation, financial inclusion can be a key driver of poverty reduction and economic growth and at the same time contribute to promoting greater equality — and, indeed, it is a target in all three of these goal areas (poverty eradication, economic growth and job creation, and reducing inequality). Financial inclusion also figures as targets under goals on food security, women’s economic empowerment, health, etc. This is consistent with financial inclusion being a means to achieving broader development goals. As a result, we hope that it will continue to be embedded in the targets under the eight goals where it is mentioned.
Q: What do you think will be needed to achieve the goal of global financial inclusion by 2020 and how can this contribute to the goal of eradicating extreme poverty by 2030?
In regard to the link between the goals of financial inclusion by 2020 and eradicating extreme poverty by 2030, let me say that while I believe that we can go far towards providing financial access by 2020, any declaration of reaching that goal will be based largely on transactional accounts. The fastest growing part of financial inclusion is in the area of payments: people using a phone to send or receive money to/from family or friends, to receive social transfer payments from governments or development organizations, or to pay bills more conveniently. Digital channels are opening up the possibilities for a large array of products and services.
But, where there will likely still be gaps by 2020 is going beyond access to usage. Providing a payment option or opening a bank account is a starting point but not enough; people must use those payment options or accounts in order to benefit from them and to be fully included financially. To drive usage, these payment services must be designed based on client needs and preferences. Furthermore, payments are just one aspect of the kinds of products and services that people want and need. They may be the entry point, but it will be critical that other products and services such as savings, credit, and insurance are layered on the payment services.
That takes us to the link between financial inclusion and eradicating extreme poverty. I am amongst the many who believe that financial inclusion is a critical factor in addressing poverty. We all know that the causes of poverty are complex, however, and the solutions are not simple either. Financial inclusion is necessary, but not sufficient, to eradicate poverty.
One of the things that we at the United Nations Capital Development Fund (UNCDF) are particularly focused on, given our mandate to work first and foremost in least developed countries (LDCs), is to look at ways that greater financial inclusion can help contribute not only to better developmental outcomes for people, but also contribute to more vibrant economies and greater availability of domestic resources.
We recognize a clear link between national financial inclusion strategies—and the ensuing implementation plans—and higher levels of financial inclusion. We believe that this in turn leads to both poverty alleviation and economic growth. As a result, we are stepping up our efforts to support the development, implementation, and monitoring of such plans through the Making Access Possible (MAP) initiative.
We have seen tremendous leverage from small amounts of “smart” overseas development assistance (ODA) and philanthropic funding used to help financial service providers (FSPs) to develop the business models that will help them meet the real needs of women and men. Such investments can help encourage private sector players move into riskier markets and demonstrate the potential of these markets to be profitable, and thereby “crowd in” domestic and South-South capital to scale up and replicate these models.
When people have convenient access to formal accounts, individuals and households of even limited means as well as micro- and small enterprises (MSMEs) will place their savings in institutions where their money is safe and accessible, as we have seen through the MicroLead initiative, amongst others. Such savings, when taken cumulatively, can then be directed into financial services that promote local markets, small-holder agriculture, MSME development, education for girls, and so on.
Q: In relation to our host region, what are the challenges and opportunities facing Africa & the Middle East in regards to microfinance and financial inclusion?
The Ebola crisis has forced a recognition that a public health crisis has many other dimensions, and one of those is related to the payments infrastructure—and, more broadly, how financial services can be relevant in the response, recovery, and rehabilitation stages in natural disasters and post-conflict situations. Given the number of countries in the region that are affected by these humanitarian crises, it is critical that governments, development organizations, and providers know when and how to use financial services to get through and beyond the crisis to secure, healthy, and productive lives. We are working on a policy guidance note on this topic, based in part on our experience supporting the Ebola response, and there are many others who are doing terrific work in this space.
An area in which Africa is leading the way globally is in mobile money. Indeed, mobile money was the major contributor to the increase of financial inclusion in Africa, according to Global FinDex. More people in Africa have phones than bank accounts. And, increasingly, mobile network operators are taking advantage of that—often in partnership with financial institutions—to offer people not only payment services, but also other products using the mobile platform. There is still much work to be done, however, to realize the promise of digital finance (i.e., mobile money and other services including the use of electronic vouchers, debit and credit cards, etc. in conjunction with ATMs, POS [point-of-sale], and other devices), but it has great potential in connecting low income and rural customers with the services that they need, not only financial services, but health, education, energy, water and many more.
We believe — and particularly at the Better Than Cash Alliance and the Mobile Money for the Poor initiative — that taking an “ecosystem approach” to digital finance will be essential to realizing that promise. Such an approach involves policymakers and regulators, the various providers of digital financial services, as well as retailers and others in the acceptance networks, and it requires the support of development partners and must take as its starting point the wants and needs and capabilities of the consumer. We are encouraged to see such approaches start to take root in a number of countries in the region.
About the United Nations Capital Development Fund
The United Nations Capital Development Fund (UNCDF) is the UN’s capital investment agency for the world’s 48 Least Developed Countries (LDCs). UNCDF uses its capital mandate to help LDCs pursue inclusive growth. UNCDF uses “smart” Official Development Assistance (ODA) to unlock and leverage public and private domestic resources; it promotes financial inclusion, including through digital finance, as a key enabler of poverty reduction and inclusive growth; and it demonstrates how localizing finance outside the capital cities can accelerate growth in local economies, promote sustainable and climate resilient infrastructure development, and empower local communities. Using capital grants, loans, and credit enhancements, UNCDF tests financial models in inclusive finance and local development finance; de-risks” the local investment space; and proves concept, paving the way for larger and more risk-averse investors to come in and scale up.
About Beth Porter
Beth Porter has over 20 years of experience in microfinance and organizational development in 30 countries in Africa, Asia, and Latin America. As a policy adviser at the UNCDF, Beth provides policy guidance and support to the global team on financial inclusion. She previously launched and directed the YFS-Link initiative at Making Cents International to build the capabilities of financial services providers and youth-serving organizations in youth-inclusive financial services.
At Freedom from Hunger, Beth led program strategy and managed delivery of integrated microfinance services to 1.2 million women and their families in 16 countries. She has provided technical assistance and training in strategic and business planning, product design, and organizational effectiveness and operational efficiency, and is experienced in program appraisal, design and evaluation. In addition, Beth is on the boards of the SEEP Network, the Bolivian MFI CRECER, the SMART Campaign in Microfinance, Child and Youth Finance International, and was a founder of Women Advancing Microfinance (WAM)-International and past Chair of WAM-Northern California.
Visit the UNCDF website: http://www.uncdf.org/