Building Tools to Measure How, and How Much, Consumers Benefit from Financial Inclusion
(Editor’s note: This is the second in a three-part series by insight2impact (i2i) and also part of NextBillion’s focus on financial inclusion for the month of June.)
During my tenure as the director for financial inclusion at South Africa’s National Treasury, the discussions around financial inclusion often focused on seemingly straightforward questions: What is the state of financial inclusion in the country? What are the most critical areas requiring policy interventions? What targets are appropriate for what we want to achieve? How will we measure progress toward these targets? How will we evaluate the impact of our work when we reach, or don’t reach, these targets?
These questions were intended to inform our policy. But I learnt that answering them was not as straightforward as it would seem and that it was hard to align the information we had with what we wanted it to inform.
For example, I wanted to know whether adults were truly benefiting from the new financial services they had access to, but I had only information and frameworks to inform whether financial inclusion was increasing or decreasing. There was new thinking on how adults derive value from financial inclusion, but this had yet to be translated into reliable and actionable tools.
I was reminded of this at the end of April when I presented at the Alliance for Financial Inclusion’s (AFI) joint Financial Inclusion Data (FID) and Financial Inclusion Strategy Peer Learning Group Meetings in Tajikistan. Along with other organisations, AFI and its members have been leaders in promoting the use of data to advance financial inclusion through its working groups and its role in supporting the agenda of the G20 Global Partnership for Financial Inclusion.
Only a few years ago, I was part of the FID Working Group tasked with the development of the initial core set of financial inclusion indicators. While these indicators were critical in mobilising the members around financial inclusion, new questions are now being asked around usage, value and impact. The AFI members are again rising to the challenge of how data can be used to better answer these questions.
My presentation in Tajikistan focused on our recently released i2i measurement frameworks and how we’re translating them into actionable and reliable tools for regulators, policymakers and others taking up the new financial inclusion measurement challenge.
The presentation drew on a recent pilot test in South Africa, where we designed and tested a survey module based on our needs measurement framework concept, which takes the user’s fundamental financial needs as a point of departure for understanding actual usage patterns. We were testing whether this approach can deepen our understanding of whether and how consumers benefit from financial inclusion. It was only an illustrative example but also highlighted to the members the power of this new framework in aligning what we want to inform with the information we collect.
For example, in South Africa the survey module focused on how adults respond to different risk events. It provided us with insight into the frequency of risks experienced by adults, what financial service (formal, informal or “do it yourself”) they use to respond to these events and whether there was any difference in behaviour between genders. It (fortunately) disproved my assumption that adults mostly rely on credit to respond to risk events (only 2 percent of respondents did), but it confirmed my assumption that many adults (more than 30 percent of respondents) in South Africa do not have the option to use financial devices when a risk occurs.
This already takes us closer to aligning our frameworks with the outcomes we want to see in financial inclusion. In this case, it was the resilience of households; but it could also be the individual’s ability to meet goals or smooth consumption by managing his or her liquidity. Further, the needs framework helps policymakers and regulators to identify unmet demand and gaps in provision. For example, if a large portion of survey respondents use only informal financial services toward a specific purpose, it highlights a need that the formal sector has not yet managed to meet.
Refining this framework, developing indicators and aligning outcomes to the extent to which financial needs are met will be a key part of our work going forward – as will testing our other financial usage measurement frameworks.
The regulators and policymakers at the joint working group meeting showed significant interest in testing, refining and building on this approach, and a sub-group of countries within the FID Working Group was created to adapt these frameworks, develop and pilot survey modules, analyse the data and document the learning and results.
The i2i facility will continue to feed into – and draw on – this process. After all, our raison d’etre is to improve the use of data in the pursuit of the global aim of making financial services available to all in a responsible and sustainable manner. We hope that our journey toward more informative and action-oriented financial inclusion measurement approaches will assist all actors in the financial inclusion world in achieving this.
If you’re interested in learning more about how you can get involved in our measurement work, please contact me at email@example.com.
Roelof Goosen is head of measurement at the insight2impact (i2i) data facility.