Financial inclusion for managing risks against poverty & shocks

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This presentation briefly discusses: …

This presentation briefly discusses:
- the role of financial inclusion in risk management for the poor and
- what can be done to improve the situation

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  • 1. Financial Inclusion for Managing Risks against Poverty & Shocks Syed Sohail Javaad July 23, 2014
  • 2. 2 Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the Poor: How the World's Poor Live on $2 a Day. Princeton University Press. Exact reproduction from http://www.portfoliosofthepoor.com/pdf/Chapter1.pdf
  • 3. What is Financial Inclusion? 3 • Enabling more and more people: – To have a bank account for savings – Easily send and receive money through formal channels – Have access to formal credit – Have access to health insurance – Carry less cash and use cards for making payments – Be part of the formal economy
  • 4. The Problem of Financial Inclusion? 4 • Adult population: About 4.8 billion* • Financially Excluded: About 2.5 billion* • More than half of world’s adult population is financially excluded and lives on the fringe of existing financial system • A massive 72% of adults in developing countries don’t have a bank account** * Estimated using 2005 numbers from “Financial Access Initiative Note – October 2009” from www.financialaccess.org ** Kendall, J., Mylenko, N., & Ponce, A. (2010). Measuring Financial Access Around the World. The World Bank, Financial and Private Sector Development. The World bank
  • 5. 5 Source: Financial Access 2010: The State of Financial Inclusion Through the Crisis By Consultative Group to Assist the Poor/The World Bank Group
  • 6. Why do we need Financial Services / Access for the Poor? 6 • Research has shown that if financial services and reliable financial instruments are accessible to poor people, they stand a better chance of improving their lives * • Financial access generally enables people to prepare themselves for any shock or future need (for example, by buying insurance or a savings instrument) * Collins, D., Morduch, J., Rutherford, S., & Ruthven, O. (2009). Portfolios of the Poor: How the World's Poor Live on $2 a Day. Princeton University Press
  • 7. Reasons for Financial Exclusion 7 • Usually poverty, low income and low education are citied as the biggest reasons • Lack of developed financial Infrastructure especially in low income countries* • Expensive and financially infeasible for the formal financial institutions to serve the poor • Perception of the poor as “high risk customer segment” by service providers (For example, banks and insurance companies) * Beck, T., Demirguc-Kunt, A., & Martinez Peria, M. (2005). Reaching Out: Access to and Use of Banking Services Across Countries. The World Bank
  • 8. How is the problem being addressed? • By governments – • Financial inclusion as an State objective • Creation of friendly regulatory regimes • By Multilateral Agencies – • Allocating funds for projects • Research Initiatives • By Private sector – • Mobile and branchless banking 8
  • 9. What needs to be done?* • Governments in developing countries may encourage the use of information and payments technology for providing less expensive financial services to the poor • Service provider (especially banks and insurance companies) can use innovative business models to while provide services to the poor while still remaining profitable • Increased financial literacy among the poor so that they have the knowledge to use formal financial services as tools of effective risk management 9 * Based on author’s own research and understanding of the topic
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