Highlights

This chapter documents five internal factors (under the direct control of the World Bank Group) and two external factors (not under the direct control of the Bank Group) that influence the effectiveness of Bank Group financial inclusion interventions.

Internal factors:

Quality country engagement (long-term engagement with in-country presence) and technical capacity gave the Bank Group opportunities to support financial inclusion through dialogue and participation in national processes and through complementary interventions. It enhanced communication among stakeholders and allowed the Bank Group to adapt and help clients respond to crises. Analytic tools and knowledge resources generated traction internally, and partnerships, such as the Consultative Group to Assist the Poor, also contributed to effectiveness.

Supporting private sector capacity and incentives and work quality also enhanced Bank Group success. The public sector by itself rarely provided a complete answer for delivering financial services to underserved groups. Work quality at entry and supervision is important for success.

Formal collaboration across the Bank Group proved valuable in some country cases but was not a statistically significant factor of success across the portfolio. Case studies indicated many successful cases of complementarity and coordination between the World Bank and the International Finance Corporation.

External factors:

Client commitment emerges from the case studies as a critical success factor. The Bank Group’s engagement is inevitably shaped by the role client countries want it to play and their willingness to accept support. Where the World Bank did not lead support of national financial inclusion strategies, it often supported individual aspects of their implementation.

Collaborating with external partners did not systematically enhance success across the portfolio, but it did in several country case studies. In those cases, the Bank Group successfully tapped international partnerships for added resources and influence or divided responsibilities with partners to support financial inclusion goals.

This chapter considers lessons from Bank Group experience on factors that contribute to or limit effectiveness in supporting financial inclusion. It draws primarily from the case studies, the portfolio analysis, and an econometric analysis. Although external factors outside the direct control of the Bank Group matter, the Bank Group has control over a host of internal factors of success.

Internal Factors

Quality of Country Engagement

Long-term and sequential engagement with in-country presence contributed to success in the case studies. It gave the Bank Group opportunities to support financial inclusion through dialogue and participation in national processes and through projects that could complement or build on one another. Although it did not overcome all constraints, it generated goodwill and mutual understanding among client governments, other stakeholders, and the Bank Group. It allowed the Bank Group to continue to engage through the ebb and flow of projects and waxing and waning of government interest and activity. In addition, it allowed the Bank Group to help governments adapt to crises in ways that advanced financial inclusion. This was seen in many instances where the Bank Group supported use of government payments for COVID-19, cyclone, or flood relief to advance financial access through the creation of financial accounts.

The Bank Group’s long-term engagement in Mozambique increased its influence and ability to adapt its programs to turn crises into opportunities to advance financial inclusion. The presence of expert staff in the field over a prolonged period allowed the Bank Group to both help craft the NFIS and help implement it, including by chairing a working group under the leadership of the central bank. Bank Group analytical work, although not comprehensive, was influential. Through its partnership with the government, it was able to use its role in supporting cyclone and COVID-19 responses to support partial digitalization of payments, which included the creation of new transaction accounts for many citizens.

In Pakistan, the Bank Group’s long-term engagement laid the foundation for analytical support that influenced the formulation of the NFIS, which later benefited from World Bank DPO support of reform actions. The engagement evolved with the shifting financial inclusion landscape. The World Bank provided technical notes to the State Bank of Pakistan, complemented by parallel analytical work through the FSAP. Pakistan has a long history of crises and emergency responses, including COVID-19 and the monsoon floods in 2022. The Bank Group’s engagement enabled it to support state institutions in responding to these challenges through a broad base of interventions, including direct payments. These payments, in turn, became opportunities to enhance financial inclusion. The long-term engagement also allowed the Bank Group to partner with the State Bank of Pakistan to introduce several market solutions. One was a recently launched interoperable instant payment system for smallholders called Raast, which was part of Pakistan’s National Payment Systems Strategy. As of mid-2022, Raast served 13 million DFS users.

Successfully introducing digital services frequently required sequential engagement, often starting upstream. 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. Earlier upstream interventions were in many cases 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. By contrast, in Indonesia, an FY15 IFC advisory project sought to accelerate the “digital integration” of small traditional retailers into emerging digital supply chain payment and financing networks to facilitate the migration from cash to digital payments. However, ill-adapted regulations impeded progress, and the lack of key ancillary system features (such as a national identification system) constrained expansion of fintech products and payment services.

Technical Capacity of World Bank Group Teams

Successful projects typically had capable teams who could tap global experts and inform their work with analysis. In many cases, teams comprised expert local and resident international staff, supplemented by support from global subject or industry experts. Bank Group teams could also draw on analytic tools (such as FSAPs, Global Findex, and a variety of tool kits and frameworks) and other knowledge resources (generated both internally and from partnerships, such as that with CGAP, discussed under external factors) to address various challenges.

In the Philippines, having the right team for complex projects led to successful outcomes. The World Bank’s catastrophic risk facility ASA and the IFC AS on digital risk management both used personnel with global expertise in their fields, which led to highly positive outcomes. The World Bank hired the foremost expert in catastrophic risk insurance from New Zealand to help create a public-private reinsurance facility, the Philippines Catastrophe Insurance Facility, and provide technical assistance in updating and implementing a revised catastrophe pricing system. The Bank Group’s global reach allowed cross-fertilization of ideas. For example, introducing the Philippines to India’s Aadhaar identification system helped kickstart the PhilSys (Philippine Identification System) initiative. It allowed the Bank Group to expose counterparts to best practices in areas such as how to approach women’s insurance. IFC was able to link a rural bank client to a network of other institutions to support learning and find solutions for expanding digital initiatives.

Bank Group technical knowledge enabled it to successfully support aspects of Colombia’s NFIS, including changes in the regulation and governance of the financial inclusion policy. World Bank technical knowledge embodied in analytical work, technical notes, and advisory work underpinned advances in new policies and financial education programs. World Bank expertise supported the government in strengthening the regulatory framework for consumer protection and improving the enabling conditions for DFS. IFC mobilized expertise through advisory projects supporting reforms to the collateral registry to better underpin microenterprise and SME finance. It supported several financial sector clients on digital transformation, use of movable collateral, and products designed for refugee immigrants.

Supporting Private Sector Capacity and Incentives

The Bank Group often achieved better results when it was able to work with clients and stakeholders to incorporate private sector capacity and incentives. The public sector by itself rarely provided a complete answer for delivering financial services to underserved groups. Thus, a key challenge was creating conditions in which the private sector was able and incentivized to provide such services.

In Pakistan, several enablers of the private sector role in financial inclusion were identified as part of the development of the NFIS. Public-private sector commitment, dialogue, and coordination were important to advance enactment of critical legal reforms and to foster digitalization by shifting government payments to electronic platforms. Further, by discouraging programs that distorted markets and prices, market incentives motivated the private sector to deploy financial products and services to enhance usage. Enhancing usage in this way depended on a sound enabling legal and regulatory environment to facilitate the development of an ecosystem of quality financial products. The Bank Group effectively supported these enablers. For example, it supported the development of the Secured Transactions Act of 2016, which enabled the use of movable collateral.

In Tanzania, where interoperability was a key constraint on the rapid expansion of mobile financial services, IFC engaged with technical support from CGAP. IFC worked to coordinate and align the industry and the regulators toward common goals. It facilitated a voluntary, self-regulated industry process guided by commercial interest. Four mobile network operators and two banks signed a memorandum of understanding to participate in setting the standards for interoperability and to implement interoperable person-to-person transfers. CGAP later used this “coopetition” model, whereby private sector operators collaborate on interoperability within a market where they compete for clients and business. Regulators encouraged this, lacking the capacity and resources to lead the initiative.

By contrast, efforts to escalate financial inclusion in Nigeria were frustrated by a weak and restrictive enabling environment for private sector services that the World Bank had to address before financial inclusion interventions could succeed. The 2019 Systematic Country Diagnostic identified shallow financial markets as a key constraint on Nigeria achieving the twin goals of poverty reduction and shared prosperity. However, the Bank Group diagnostic and strategy identified financial market development as important for Nigeria to stimulate nonoil growth. A host of factors were limiting, including access to land and technology, low human capital, infrastructure gaps, violent internal conflicts, high dependency on oil, and bad governance. The lack of an enabling regulatory environment was a prominent limitation, which the World Bank partly addressed through external collaboration.

Some case studies suggest instances where short-term objectives overrode consideration of private sector interests. In several countries (such as Mozambique and Egypt), authorities suspended fees for some financial services during COVID-19. This forced private operators to absorb service costs, reducing their incentives to expand services and extend them to new customers.

For IFC financial institution clients, private sector capacity was critical. For institutional transformation, success factors included choosing sponsors or clients with experience in microfinance and adequate records in terms of asset quality, strong capitalization, and commitment to apply good practice standards. In addition, those NBFIs and MFIs had prior established clientele, which helped expand their business to other regions and business lines. Internal success factors were related to client capacity and long-term strategic support to the client.

Work Quality at Entry and during Supervision

Our case studies and econometric analysis confirm the importance of work quality for project success. Our econometric analysis emphasizes the importance for project success of Bank Group work quality at entry, in the identification and design of projects, and during supervision and administration.1 Controlling for multiple other explanatory factors, including country context, financial inclusion projects with low work quality at entry have an average success rate of 75 percent (compared with an 84 percent success rate for other projects). Projects with insufficient supervision and administration have an average success rate of 72 percent (compared with an 82 percent success rate for other project supervision and administration ratings; appendix C). Work quality interacts with country characteristics that can augment or diminish its impact. Low work quality at entry is more likely to contribute to project failure the higher the country’s income level. Conversely, low work quality during supervision figures more prominently the lower the country’s income level.

Successful projects in Lebanon, Nigeria, and Malawi illustrate the contribution that work quality can make to success. During screening and appraisal for a project supporting a leading MFI in Lebanon, the project team conducted a thorough market study of the microfinance market in Lebanon, the competitive landscape, and the client’s competitive positioning within the sector. The project’s structure was appropriate to the company’s needs. The team correctly identified project strengths, risks, and mitigations, which contributed to success. In Nigeria, an IFC project succeeded in part because of work quality at entry—identifying a strong client, mitigating risks, and structuring the investment. High work quality also helped a $26 million World Bank technical assistance succeed in Malawi. The project, which aimed to increase access to finance for people without bank accounts, was underpinned at appraisal by high-quality technical studies including an FSAP. The advance procurement of effective technical consultants expedited project progress.

The perils of weak supervision were evident in a World Bank DPL in Samoa. Payment systems and remittances were a focus of the Samoa First Fiscal and Economic Reform Operation. At evaluation, interbank credit transfers had decreased, as had mobile banking transactions. Supervision was found at evaluation to have been “relatively ad hoc,” failing to identify emerging challenges to outcome achievement.

Other attributes of good work quality, including understanding local conditions, adjusting resources to client capacity, and choosing clear targets to measure and monitor, are often important. In Bangladesh, thorough assessment of client needs and fostering the participatory identification of the most vulnerable population contributed to the effectiveness of the World Bank Second Social Investment Program Empowerment and Livelihood Project in channeling resources where they were most needed. Some projects failed because of a lack of understanding of and adaptation to local conditions. In Nigeria, an effort to shift social payments to mobile money platforms proved impossible as a crisis response because of limited prior adoption of digital G2P payments and weak digital payment infrastructure.

Other contributors to success include project design, both through appropriate choice of instrument and through scale of financing. For example, in terms of choice of instrument, DPOs could prove ill-suited to advance reforms requiring prolonged support. The importance of selecting the right scale of financing is illustrated by a project in Nigeria that aimed to increase access to housing finance by deepening mortgage markets with a $305 million World Bank investment loan. At design, it was envisioned that the Nigeria Mortgage Refinance Company would issue N50 billion in bonds to refinance the mortgage loan portfolios of eligible mortgage lenders. However, it ultimately issued only two series of bonds for just N19 billion. By closure, lenders had provided only 14,978 new mortgage loans, which fell 70 percent short of the target of 50,000.

World Bank Group Collaboration

Although we found many successful examples of coordination between the World Bank and IFC in the case studies, there was no statistically significant association between formal collaboration and success. In many countries, the World Bank and IFC worked in a complementary fashion, with the World Bank focused more upstream and IFC more downstream. IFC advisory staff often worked in highly complementary ways to IFC and World Bank lending. However, our analysis did not find a statistically significant relationship.

We found that only 11 percent of Bank Group projects in the portfolio involved any institutional collaboration. At the institution level, IFC investments coordinated almost exclusively with IFC AS. By contrast, IFC AS often explicitly collaborated or combined with World Bank ASA and lending and IFC investments. In Egypt, World Bank ASA aimed at strengthening DFS, the national payment system, and financial consumer protection and literacy complemented IFC’s support in a supply chain finance. Staff interviews suggest that the degree of collaboration increased while IFC AS were located within Finance, Competitiveness, and Innovation, a joint World Bank and IFC Global Practice. During this time, World Bank and IFC staff jointly participated in meetings and interacted closely. However, after IFC reabsorbed its Finance, Competitiveness, and Innovation staff, World Bank–IFC communication reportedly weakened and depended mainly on personal relationships.

Country case studies largely support the finding of limited formal Bank Group collaboration. Only 1 case study country out of 10 highlighted substantial Bank Group collaboration. In Mozambique, the World Bank focused on DPOs promoting legal and regulatory reform, and IFC focused on AS to expand capacity and certain financial infrastructure (such as the mobile collateral registry).

External Factors

Country Factors—Client Commitment and Government Effectiveness

Client commitment emerges from the case studies as a critical factor in supporting financial inclusion. In Brazil, until 2018, the central bank’s strong commitment supported the Bank Group’s financial inclusion interventions. The central bank’s governor was active both nationally and internationally, even serving as chair of the Alliance for Financial Inclusion. However, once he left office in 2018, the pace of implementation of the NFIS 2018–22 and some projects slowed.

In several countries, key client counterparts had limited interest in Bank Group support.2 In Egypt, the central bank assigned leadership of the NFIS to Deutsche Gesellschaft für Technische Zusammenarbeit, the German Agency for Technical Cooperation. In Nigeria, the central bank was reluctant to authorize innovative service providers, such as mobile operators, to operate beyond the local level, impeding support for the emergence of national systems.

A cluster of external factors are associated with project success. These include shocks (such as financial crises, natural disasters, and pandemics) and project-specific client characteristics, including corruption, client commitment, public sector institutional capacity, private sector institutional capacity, collaboration with external donors, agency coordination, and political economy. In our econometric analysis, the average success rate of projects with negative external factors is 75 percent compared with 83 percent for projects that did not face negative external factors. Anecdotal country experience also suggests a role of good governance, especially for DPO success. Both Mauritius and Bhutan are in the upper quartile of countries ranked in Worldwide Governance Indicators for government effectiveness. In Mauritius, a programmatic DPL series succeeded in advancing expanding coverage of the credit bureau and strengthening the basis of secured transactions. In Bhutan, a DPL succeeded in supporting an expansion in MSME financial access, credit information, and collateral registration.

External Collaboration

Evidence of collaboration with other donors was limited across the Bank Group’s portfolio. In general, the case study experiences of external collaboration were positive, but external collaboration made no statistically significant difference in success (appendix C). Nonetheless, in several country cases, the Bank Group tapped international partnerships for added resources and influence. Some global partnerships, such as CGAP (box 4.1), are hosted within the Bank Group but independently serve multiple partners. In other cases, IFC and MIGA coordinated with other bilateral or multilateral donors or external bodies, such as the Bill & Melinda Gates Foundation and the Mastercard Foundation, either dividing or, less commonly, sharing responsibilities in support of country financial inclusion goals. For example, in Nigeria, the World Bank played a strategic role through its collaborative advocacy campaign in partnership with the Bill & Melinda Gates Foundation and Queen Máxima’s office to advocate for the provision of licenses to mobile network operators, despite central bank reluctance. These collaborative advocacy efforts led to the participation of two mobile network companies in payment services.