The document discusses the crucial role of financial inclusion in alleviating poverty and managing financial shocks, highlighting that around 2.5 billion adults globally are excluded from formal financial systems. It identifies key barriers to financial access, including poverty, low income, and insufficient infrastructure, while outlining initiatives by governments and the private sector to improve access. Recommendations include leveraging technology, adopting innovative business models, and enhancing financial literacy among the poor.

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

10. 10