NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, April 16, 2015

Last year, researchers travelled around the globe to talk about personal finance with a hundred and fifty thousand people, representing a range of socioeconomic classes, and living both in cities and in remote, rural parts of more than a hundred and forty countries. In some countries, they called people; where phone use was less widespread, they visited interviewees one by one. The questions they asked were, at times, probing. Had respondents, in the past year, received money from a relative or friend? If they needed to come up with emergency funds, how possible would it be, and where would the sum come from? Did they have an account at a financial institution? The results of those inquiries were published Wednesday, in the latest edition of the Global Findex Database, put out by the World Bank. The report found, most notably, that the percentage of adults with some kind of financial account—at traditional institutions like banks, or with companies that let people use their cell phones for transactions—rose from fifty-one per cent worldwide in 2011 to sixty-two per cent in 2014.

The concept of financial inclusion—bringing more people into the formal financial system—is fraught. It’s hard not to notice that it happens to mean more customers for powerful banking institutions, many of which have ties to the World Bank. Some of the services these entities offer—credit, for instance—have been known to worsen people’s financial lives at least as often as they have helped to improve them; in fact, research on the impact of improving people’s access to credit, as a specific financial service, is mixed. Leora Klapper, a lead economist at the World Bank and an author of the report, acknowledged this (“Not everyone should have credit,” she said), but she added that the Findex Database is more concerned with people’s access to savings vehicles, which, evidence suggests, have a positive impact.

One evaluation in rural western Kenya, according to a report from the Consultative Group to Assist the Poor, found that access to a savings service helped female market venders to spend more on food for their families and invest more in their businesses. (A study of male rickshaw drivers in the same village didn’t, however, show such benefits.) Another examination in Kenya, cited in the same C.G.A.P. report, found that those who used the popular mobile service M-Pesa, which lets people transfer and store funds with their cell phones, were better able to absorb negative income shocks—events like a severe illness or a job loss—than those who didn’t use the service.