This evaluation explores how and with what effect the World Bank Group has supported financial inclusion for the microenterprises, poor households, women, and other excluded groups (MPWEG). Financial inclusion is defined as the use of financial services by individuals and firms. As this implies, financial inclusion refers not only to financial access—owning an account—but also to the use of financial services. This evaluation focuses on financial inclusion interventions that target the MPWEG. The objective of the evaluation is to assess whether the Bank Group has been doing the right things (whether it has been relevant) and whether it has been doing things right (whether it has been effective) on financial inclusion. The evaluation team used mixed methods, including (among others) a portfolio review and analysis, a structured literature review, case studies in 10 countries (Bangladesh, Brazil, Colombia, the Arab Republic of Egypt, Indonesia, Mozambique, Nigeria, Pakistan, the Philippines, and Tanzania), in-depth analysis on digital financial services (DFS) and gender, an analysis of data from Global Findex 2021, and semistructured interviews with Bank Group staff working on financial inclusion.

A Sizable World Bank Group Engagement on Financial Inclusion with an Unknown Impact on the Underserved and Excluded Groups

The Bank Group’s involvement in financial inclusion for MPWEG has been substantial. During the evaluation period, the Bank Group financed nearly 1,700 financial inclusion activities worth about $30 billion and engaged in important knowledge development and global partnerships. We assessed the Bank Group’s work on financial inclusion for MPWEG and other financially excluded or underserved groups from 2014 to mid-2022. The World Bank financial inclusion portfolio consisted of 429 World Bank lending projects worth almost $23 billion, including over $11 billion in investment financing and an estimated $12 billion in development policy financing, and 677 advisory services and analytics. The evaluated International Finance Corporation (IFC) financial inclusion portfolio included 189 investments worth $5 billion and 360 advisory services (AS). The portfolio also included six Multilateral Investment Guarantee Agency guarantees totaling $1 billion (table O.1) but only one evaluated project, limiting the inferences that may be derived from its experience. Beyond this portfolio, the Bank Group played a central role in leading the Universal Financial Access 2020 (UFA2020) initiative, in mobilizing partnerships in support of financial inclusion, and in generating financial inclusion knowledge and public goods (including the widely cited indicators of financial inclusion, the Global Findex).

Source: Independent Evaluation Group portfolio review and analysis.

Note: The evaluation period covers fiscal years from 2014 to mid-2022. Fiscal year 2022 considers projects approved by December 31, 2021 (or effective by December 31, 2021, for MIGA projects). AS = advisory services; ASA = advisory services and analytics; DPO = development policy operation; IFC = International Finance Corporation; IPF = investment project financing; IS = investment services; MIGA = Multilateral Investment Guarantee Agency; MPWEG = microenterprises, poor households, women, and other excluded groups; P4R = Program-for-Results.a. To estimate total volume related to financial inclusion in DPOs and other multicomponent projects, the projects’ committed amount was allocated proportionally among components (for example, prior actions for DPOs). Only components related to financial inclusion were considered. Where a component had multiple subcomponents, the committed amount was allocated proportionally to those subcomponents addressing financial inclusion.b. Volume for unevaluated projects was estimated based on the stratified random sample design, reflecting a 95 percent confidence level. The sampling framework considered institution, instrument, Region, and country income level as strata.c. For advisory projects, expenditure values are used. These values are not directly comparable to volumes associated with financing projects.d. The Independent Evaluation Group used a keyword search to identify 1,205 World Bank ASA projects potentially related to financial inclusion. A random sample reflecting a 95 percent confidence level produced a 43.8 percent rate of false positives. This figure was applied in projecting from the sample to the population.

Financial inclusion has been considered vital to achieving Sustainable Development Goals because poor households and microentrepreneurs face challenges that financial services can help address. Transforming irregular income flows into dependable resources to meet daily needs is a key challenge for the people at the base 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 challenges, it has been linked 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.

Although financial inclusion is generally positively correlated with economywide growth and employment, 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. At the country level, there is a positive relationship between indicators of financial inclusion and indicators of economic growth (appendix D), but substantial gaps in the evidence on the impact of financial inclusion on the income, consumption, and exit from poverty of MPWEG remain. A systematic review of reviews found the impacts of financial inclusion on poverty to be “small and variable” with some positive effects of some services for some people. Overall, it found that financial inclusion “may be no better than comparable alternatives” to address poverty, such as income transfers or other services or benefits (Duvendack and Mader 2019). A structured literature review by the Independent Evaluation Group of subsequent publications confirmed a mixed picture of the evidence for the benefits of financial inclusion to the MPWEG and other financially excluded and underserved groups. For example, there is abundant, mixed evidence on credit services but far thinner, mostly positive evidence on savings. Some authors have argued that the lack of an apparent direct impact of financial inclusion on poverty is because the channels through which financial inclusion enhances welfare are indirect, by helping 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 downstream (service delivery-level) benefits that are hard to observe.

Most Bank Group financial inclusion projects did not assess impact or higher-level outcomes, limiting the Bank Group’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 typically related to the number and volume of accounts and transactions, or in the case of upstream (policy and institutional) reforms, the change of a regulation or law. Our evaluation finds that 91 percent of 293 examined Bank Group projects had no information on whether the projects had improved household or microenterprise outcomes, such as income or jobs, or had contributed to reducing poverty. When the Bank Group or governments measured outcomes, it was often not possible to attribute them to Bank Group support, particularly when several donors had provided support to financial inclusion. Most projects had no basis for linking financial inclusion interventions to any economic or social outcome. Positive exceptions include projects in Indonesia and Pakistan that benefited from 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.

Evolution of World Bank Group Support from Financial Access to Financial Inclusion

Within the evaluation period, the Bank Group promoted financial inclusion by focusing on access to finance more than on financial inclusion. This was consistent with the goals of the UFA2020 initiative. The ambitious goal of the UFA2020 initiative, as announced by the Bank Group’s president in 2013, was “ensuring that people worldwide can have access to a transaction account” (World Bank 2022a). This meant enabling about 2 billion adults who were financially excluded in 2014 to gain access to an account by 2020. Bank Group activities during much of the evaluation period primarily focused on access, aligning with UFA2020. World Bank and IFC management developed projects, analytical and advisory activities, and targeted initiatives (such as the Payment Aspects of Financial Inclusion programs) to fulfill the UFA2020 goals, seeing financial access as a step toward full inclusion. The Multilateral Investment Guarantee Agency has not traditionally defined overarching financial inclusion goals (as defined in this evaluation). Its most recent strategy sets a new course in this respect, with statements broadly embracing “inclusion” in general and its fiscal year (FY)21 Gender Strategy Implementation Plan explicitly emphasizing the importance of women’s access to digital services. The Bank Group UFA2020 work started in FY15 with a focus on 25 countries where 73 percent of all financially excluded people lived, reaching 100 countries by 2021.

Projects emphasizing usage of financial accounts—a vital component of financial inclusion—became common only late in the evaluation period. Project interventions with access goals during the evaluation period accounted for 70 percent of the commitment value of the portfolio, whereas less than 5 percent had usage-enhancing objectives. However, usage objectives expanded significantly during the later years of the evaluation period, from 2 percent in FY15 to 12 percent in mid-FY22. In Indonesia, an IFC project that supported the use of DFS launched large-scale awareness campaigns using advanced data analytics to improve targeting, outreach, and project design. In Brazil, IFC joined a mobile payment provider to support access to and use of electronic payments through mobile money rollouts targeting beneficiaries of the Brazilian government’s social welfare payment program. The program monitoring went beyond access to track account usage, including noncash transactions. The Bank Group’s increased emphasis on usage was underpinned by a focus on payment and DFS projects, which have grown significantly since FY19 and even more in response to the FY20 COVID-19 pandemic. Most of the Bank Group’s financial support for payments was delivered through development policy loans and analytical and advisory services, including IFC AS.

During COVID-19, the Bank Group sharply increased financial inclusion projects that supported the creation of accounts to transfer government-to-person (G2P) payments to those affected by COVID-19, but the sustainable use of these accounts is uncertain. G2P payments were intended to reach people who had lost their jobs or faced other shocks to their incomes or increased expenses imposed by the pandemic. Many of the accounts created through G2P interventions had limited use beyond receiving payments; hence, they were unlikely to continue to be used after the payments ended. In some countries, social transfers focused heavily on opening short-term accounts, increasing the risk that many accounts would fall dormant. In Mozambique, for example, G2P social payments established for crisis response lacked the fiscal resources to sustain G2P payments postcrisis. Although the ultimate fate of such accounts is not yet known, some countries recognize the need to mitigate these risks. For example, Bangladesh had already begun to take steps toward establishing a common G2P payment platform. In other countries, the accounts created for G2P were not designed to be usable for personal payments or savings or were not supported by training in beneficiaries’ account usage features. In the Philippines, the G2P program opened digital accounts for beneficiaries, but it did not train beneficiaries in financial literacy; thus, millions of accounts are predicted to become dormant. In Pakistan, many beneficiaries could only use G2P transfer accounts to withdraw benefits.

The Bank Group’s financial inclusion engagement has aligned well with countries’ national financial inclusion strategies (NFISs), contributing to an increased focus on inclusion. The World Bank has supported the design and implementation of several NFISs, including in 4 out of the 10 Independent Evaluation Group case study countries. Quality country engagement (long-term engagement with in-country presence) and technical capacity gave the Bank Group opportunities to support financial inclusion particularly effectively through dialogue, participation in national processes, and complementary interventions. Mozambique and Pakistan are examples of successful engagement on NFISs, including through diagnostic tools, technical notes, and policy advice partly funded by trust funds.

Bank Group collaboration with selected global partners was important to support financial inclusion and NFISs. Collaboration with the Consultative Group to Assist the Poor was important in generating knowledge and providing complementary support to clients, including on NFISs and payment systems, in several countries, including Ecuador, Indonesia, Myanmar, Pakistan, Peru, Tanzania, and Zambia. (All Bank Group activities relating to Myanmar have been on hold since February 1, 2021.) The Financial Inclusion Support Framework launched country support programs in 8 out of the 25 UFA2020 priority countries. In Mozambique, the Financial Inclusion Support Framework financed technical assistance, combined with World Bank development policy loan support, for the adoption and implementation of NFISs and national-level reforms to increase access to and use of financial services. Within the portfolio, however, collaboration with donors was limited in number and breadth.

Progress and Challenges in Reaching Underserved Groups

Over time, the Bank Group has more explicitly focused on women’s financial inclusion. At the outset of the evaluation period, Global Findex documented a “gender gap” of account ownership of 8 percentage points. Echoing a global and corporate shift toward a greater focus on gender, the number of Bank Group projects with gender components increased sharply in recent years. After a spike in FY18, the number of financial inclusion projects with a gender component subsequently plateaued at approximately twice the historical level (about 47 percent of projects compared with a prior 20 percent). Country strategies for Nigeria, the Philippines, and Tanzania specifically supported financial inclusion for women, including by developing financial initiatives and products designed for them. Over the evaluation period, an increasing number of Bank Group projects also targeted women’s use of financial services and tracked it with disaggregated indicators.

The inclusion of underserved groups besides women has remained limited. About one-quarter of projects had rural components or objectives, and only 7 percent identified refugees and forcibly displaced people, religious minorities, vulnerable children, and people with severe disabilities as their beneficiaries. However, IFC AS projects in Colombia and Guatemala were notable—the Colombia IFC AS project targeted the displaced Venezuelan population, and the Guatemala project targeted indigenous peoples living in frontier regions.

The Bank Group’s portfolio is generally relevant to address some important constraints on the financially excluded (such as cost of services and distance to financial services). The Bank Group placed a strong emphasis on addressing distance to financial services and price of services—two of the three top barriers to having a financial account. For example, Mozambique successfully increased the financial inclusion of excluded populations by reducing the cost of services and the distance to financial services. The World Bank supported creating a single national network that unified the electronic payment system and measures that made agent and branch banking more accessible to the rural population. IFC provided AS to a mobile operator that supported a rapid expansion of mobile services to the excluded groups, including in rural areas. Since 2016, the growth rate for mobile wallets has been three times faster than that for traditional bank accounts, including millions of formerly financially excluded rural and low-income residents who gained access to and usage of mobile financial services.

Both upstream and downstream support are critical to foster financial inclusion and reach underserved groups. World Bank development policy operations, World Bank advisory services and analytics (including Financial Sector Assessment Programs), and IFC AS are most commonly used for upstream support to influence policy and legal or regulatory changes and to reform institutions. Development policy operations supporting regulatory reforms had an 82 percent success rate; they were particularly successful in supporting focused, short-term reforms but were less well suited to supporting policy changes that required longer engagements. Bank Group projects supporting improvements to the financial infrastructure—credit bureaus, credit information systems, and collateral registries—had an 85 percent success rate (90 percent for IFC AS) but were less successful when addressing underlying constraints due to the legal and regulatory frameworks. IFC investment services and World Bank investment project financing, as well as IFC AS, are mostly used to support downstream service providers. A key analytical work, the Financial Sector Assessment Program, has played an important role in supporting the formulation and implementation of financial inclusion work. Financial Sector Assessment Programs with financial inclusion technical notes are widely accepted by key stakeholders as important tools to identify challenges and raise the awareness of policy makers on financial inclusion.

A key challenge to extend financial services to MPWEG is to find sustainable private business models. Most models for delivering financial services to poor people required subsidies. Services, such as microsavings and microinsurance, which have proven more beneficial to low-income individuals according to the literature, are often unprofitable when offered as stand-alone businesses. Some microcredit and mobile money services, conversely, have proved financially sustainable. This helps to explain why the majority of Bank Group lending and investment volume for financial inclusion has gone to credit services.

Digital Financial Services: Fintech Deep Dive

DFS have tremendous potential to extend financial services to MPWEG. DFS are often indispensable when traditional brick-and-mortar solutions are unusable or unsustainable, including bridging the “last mile” between the conventional infrastructure and the hard-to-reach customer.

DFS had been growing steadily in the Bank Group portfolio and accelerated rapidly with the Bank Group’s COVID-19 response. In line with global trends, since FY17, the share of DFS in the portfolio has steadily increased, with a discontinuous jump in FY21, the first full year of the COVID-19 response. The need to avoid person-to-person interactions and to deliver benefits to those most at risk from the economic consequences of COVID-19 increased clients’ drive for improved and expanded digital payment systems and services. In FY21 and mid-FY22, support for DFS accounted for over 60 percent of services in the Bank Group portfolio. Within the financial inclusion portfolio, IFC investments, although focused mostly on traditional financial institutions, commonly provided AS to enhance their clients’ offering of digital services, with a strong focus on excluded populations.

As the emphasis on digital services grew, Bank Group projects focused on digital delivery successfully. The Bank Group worked to integrate the digitalization of payments with the opening or use of digital payment accounts to receive them. Its digital services projects met with a 72 percent success rate. IFC was equally successful with financial inclusion projects whether they used digital or traditional services (77 percent) and was relatively more successful with projects using both (86 percent). Sometimes, well-placed advisory projects appear to bring major benefits. In Bangladesh, for example, IFC (in addition to its equity investment) helped bKash to develop operational procedures and a strategy for an e-wallet payment solution and to implement merchant acquisition and rollout. By the end of 2017, it had exceeded its targets for merchants (achieving a network of 50,516) and accounts linked to mobile banking systems (30.9 million).

Successfully introducing DFS frequently required sequential engagement, often starting upstream. The absence of enabling conditions often constrains DFS, which requires an enabling regulatory framework and a more comprehensive approach than has usually been taken. Factors constraining the introduction of digital services included lack of appropriate regulation, lack of ancillary systems, limited infrastructure, lack of technical and institutional capacity, and low digital financial literacy among target populations. In Nigeria, for example, shifting social payments to mobile money platforms proved impossible as a COVID-19 crisis response because of the limited prior adoption of digital G2P payments and a weak digital payment infrastructure. Early upstream interventions were often able to reduce or remove these constraints, enabling successful downstream interventions later. For example, in Tanzania, a 2014 IFC AS project supported the establishment of rules for mobile financial services interoperability. Five years later, IFC began to provide downstream AS to a leading mobile operator to enhance access to and usage of mobile payments.

Recommendations

The report highlights three recommendations to enhance the World Bank’s and IFC’s work on financial inclusion.

Recommendation 1: The World Bank and IFC should further encourage account use by underserved groups, including women and rural poor people, and emphasize this more in their strategies and projects. This will require long-term and well-sequenced approaches, with due attention to private sector capabilities, a balanced combination of supported financial services (credit, payment, savings, and insurance), and a balance between supply (for example, DFS and G2P) and demand measures (for example, financial literacy and consumer protection), as well as among upstream policy, regulatory, and institutional measures and downstream service delivery interventions. The Pakistan and Tanzania projects provide good “models” of long-term well-sequenced approaches to encourage account use by underserved groups.

Recommendation 2: The World Bank and IFC should design and implement more comprehensive approaches that address constraints in the enabling environment for DFS to reach underserved and excluded groups. Depending on market conditions, attention may be needed to constraints in the legal and regulatory framework, financial or physical infrastructure, ancillary systems, institutional capacity, and integration of digital solutions into financial services for MPWEG. A full package would often include, for example, measures to advance universal identification, digital access (covered in a parallel Independent Evaluation Group report), financial literacy, consumer protection, and data privacy. The Tanzania case study shows that joint World Bank–IFC complementary interventions, such as enabling regulations for mobile payments, merchant acceptance of such payments, and interoperability, enhanced effectiveness. The framework of measures needed for DFS to reach their full potential is known to the World Bank and IFC, but a number of client countries would require a more comprehensive approach to realize it.

Recommendation 3: To enhance learning on what works to increase the beneficial use of financial services at the MPWEG, the World Bank and IFC should collect outcome data across different underserved and excluded groups, initially on a pilot basis. Relying on Global Findex and further developing it as a tool to understand financial inclusion outcomes are essential. Collecting additional data on financial inclusion outcomes more regularly, such as who is benefiting and how they are using and benefiting from services, would 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 such 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 MPWEG, this could be launched initially on a pilot basis for a sample of relevant projects.