With over 30 billion dollars of financing and 1700 World Bank Group (WBG) activities in financial inclusion for microenterprises, poor households, women, and other excluded groups (MPWEG), key stakeholders are legitimately interested in knowing the outcomes.
Yet we know surprisingly little.
It makes a lot of sense that poor households and microenterprises would find financial services useful in confronting daily challenges. Transforming irregular income flows into dependable resources to meet daily needs is a key challenge for the people at the bottom of the economic pyramid. The challenge becomes even more difficult if poor people incur major expenses (such as a home repair or medical service) or a breadwinner falls ill. Because financial inclusion helps address these many challenges, it has been linked by the World Bank Group and others to several Sustainable Development Goals, including (among others) ending poverty, ensuring good health and promoting well-being, achieving gender equality and empowering women, promoting decent work and economic growth, and reducing inequality within and among countries. The implicit assumption is that having access to financial accounts and benefiting from their services can give poor people a chance to save their money safely, increase financing for their microbusinesses, invest in education and health, and reduce their vulnerability to shocks.
Persistent knowledge gaps on the outcomes of financial inclusion
Yet IEG’s recent Financial Inclusion evaluation found that the literature on financial inclusion provides only limited evidence on the link of financial inclusion to favorable outcomes for beneficiaries. IEG’s literature review indicates that empirical work does not yet tightly link financial inclusion to the well-being of MPWEG, measured in terms of income, consumption, or exit from poverty. Instead, the literature offers a mixed picture of the evidence for the benefits of financial inclusion to financially excluded and underserved groups. For example, there is abundant but mixed evidence on credit services. There is far thinner evidence on savings.
Some authors have argued that the literature may miss important benefits to financial inclusion for the poor because the channels through which financial inclusion enhances welfare are indirect. Access to savings, payments, credit and insurance services may help poor people build resilience and seize opportunities, often through long-term investments, such as education, that lack an immediate payoff. Investments enabled by financial inclusion to improve skills or physical well-being (health and mobility) may indeed have lifelong benefits that are hard to observe. Most research does not allow for the observation of such long-term gains.
Given the limited picture deriving from the literature, learning from the Bank’s own substantial engagement in supporting financial inclusion could contribute greatly. IEG’s evaluation assesses the Bank Group’s substantial involvement in financial inclusion between Fiscal Year 2014 and mid-2022 as well as important knowledge development and global partnerships. It identified a portfolio of 429 International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) lending projects, worth almost $23 billion, and 677 advisory services and analytics projects. The International Finance Corporation (IFC) financial inclusion portfolio included 189 investments worth $5 billion and 360 advisory services (AS). The Multilateral Investment Guarantee Agency (MIGA) had six guarantees totaling $1 billion.
Unfortunately, IEG’s evaluation finds that 91% of 293 examined WBG projects produced no information on whether the projects had improved household or microenterprise outcomes, such as income or jobs, or had contributed to reducing poverty. Most WBG financial inclusion projects did not assess impact or higher-level outcomes, limiting the WBG’s potential to contribute empirical evidence linking financial inclusion to the well-being of poor people.
The types of outcomes monitored in Bank Group projects are typically related to the number and volume of accounts and transactions, or in the case of policy and institutional reforms, the change of a regulation or law. Even where there were some measured outcomes, it was often not possible to attribute them to WBG support. Most projects had no basis for linking financial inclusion interventions to any economic or social outcome.
Learning about what works could enhance support for the beneficial use of financial services
Positive exceptions include projects in Indonesia and Pakistan that were subject to outcome or impact studies, and improvements in the monitoring and evaluation of outcomes over the evaluation period in Brazil and Indonesia. Bangladesh was an exception because outcomes achieved and measured could be linked to activities on which the World Bank had taken the lead. National data such as those in the Global Findex have been very helpful but are insufficiently granular to track changes to project and program effects.
It is important to fill in substantial gaps in evidence for a causal chain between the immediate outputs or intermediate outcomes measured in projects and the higher-level outcomes or impact expressed in the Sustainable Development Goals and by the Bank Group. Since the majority of defined project outcomes concern account access and number of transactions, there is a way to go to align project outcomes with higher-level outcomes, such as higher income, more investment and jobs, and, ultimately, economic and social mobility and poverty alleviation. The Bank Group has an important role to play in ensuring that data are collected at the project and market level to inform research and learning (including evaluation of outcomes and impact) on these links.
For this reason, IEG’s evaluation recommends that, to enhance learning on what works to increase the beneficial use of financial services by MPWEG, the World Bank and IFC should collect outcome data across different underserved and excluded groups, initially on a pilot basis. Further developing Global Findex as a tool to understand financial inclusion outcomes is essential.
Collecting additional data on financial inclusion outcomes more regularly, such as who is benefiting and how they are using and benefiting from services, can improve understanding of which financial inclusion interventions benefit the excluded groups and help people exit poverty. The data would also enhance the Bank Group’s understanding of and empirical research on how to encourage beneficial account use by underserved groups, including women and rural poor people, and how to improve the design of strategies and projects to encourage such beneficial use. In recognition of the challenges and costs of such systematic data collection on financial inclusion, this could be launched initially on a pilot basis for a sample of relevant projects.