The lack of access to even the most basic financial services makes it difficult for an estimated two billion people to save money and effectively participate in the global economy. When G20 leaders meet in Germany this week, digital financial inclusion must remain at the top of the agenda.
The theme of this week’s G20 summit in Hamburg, Germany, is “shaping an interconnected world,” and when leaders get down to business, many of the highest-profile topics – climate change, counter-terrorism, trade – will take center stage. But the attention received by a less well-known agenda item will be no less critical to ensuring global prosperity: digital financial inclusion.
Today, some two billion adults still lack access to even the most basic financial services. Digital financial inclusion is about broadening access to the formal economy by making electronic financial tools – like debit accounts that people can access on their mobile phones – affordable and available on a large scale.
When the poor start using these services, two things happen. First, they manage money more effectively – with new ways to save, make payments, access credit, or obtain insurance. Second, they spend less time taking care of simple financial transactions and more on productive work or running a small business of their own. Moreover, additional earnings and savings boost poor people’s resilience against financial shocks resulting from, say, an unexpected medical expense or a seasonal crop failure.
There is no shortage of evidence for the transformative effect of digital financial inclusion on economies. In Kenya, for example, “mobile money,” which allows users to transfer funds by text message, has helped an estimated 194,000 households escape extreme poverty. The breakthrough there was driven by changes in savings behavior and greater occupational choice, especially for women.
As more countries experience gains like these, the prospects for lasting economic growth improve dramatically. One recent study projected that broadening access to digital finance tools could increase developing countries’ GDP by an estimated $3.7 trillion by 2025.
But, in order to capitalize on the promise of greater financial inclusion, effective policies are needed at the national level. Last year, the G20 published “High-Level Principles for Digital Financial Inclusion,” which focuses on eight of the most successful strategies adopted by national governments around the world. A new G20 report published this spring probes those strategies further, and shows how to turn principles into action.