Deepening our understanding of financial product usage as an indicator of Financial Inclusion
  • February 19, 2016

The UN Capital Development Fund’s (UNCDF) Making Access Possible (MAP) programme released the second in their series of MAP Insight notes, “Depth Sounding: Shifting measurement away from a one-dimensional view of financial inclusion”. Speaking as a guest on CNBCA’s Business Tonight, UNCDF Director of Inclusive Finance, Henri Dommel, indicated an explicit need to focus on the realities of how ordinary adults in developing and emerging markets conduct their financial lives. “the data from our research is highlighting that is it important to ensure that we have the correct measures in places that actively understands consumers and their markets, if we are to understand whether policies are proving effective in expanding access to financial services, and whether the market is effectively serving the financial needs of the poor so that they do not resort to sub-optimal products to do so”.

The MAP Global Insights series unpacks the linkages between account dormancy and other means of transacting through proposing fully understanding customer behaviour and their needs for a portfolio of financial services in order to achieve effective financial management.  Examples are provided of countries that need to increase depth and breadth of usage such as Lesotho, Namibia, Swaziland and Tanzania.  The note suggests a correlation between the depth of financial inclusion in a country and level of HDI.

The need for a portfolio of products extends beyond simply having access to the traditional product classes of savings, payments, credit and insurance.  The multi-country research highlights that households and individuals require multiple products within the product classes of savings, payments, credit and insurance.  Different types of clients behave differently and have different needs for financial services.  The additional measurement, depth, can be applied across countries as well as within individual target markets.  In Lesotho for example, a large overlap exists between usage of formal and informal products.  This means the informal sector in Lesotho extends both the depth and breadth of usage, and that even people using formal financial products continue to use informal products in parallel, by choice. 

The critical question is what does all this mean for product and service providers as well as policymakers?  The research highlights that consumers of financial products need to be able to select from multiple product classes if they are to meet their full range of financial needs.  From the providers perspective, financial products and services provide a platform for net gains in revenue.  Countries such as Malawi, Mozambique and Myanmar with underdeveloped financial sectors present growth opportunities. 

For Policy makers, “Depth Sounding” indicates that measuring breath of usage of financial services presents the need for re-designed financial inclusion interventions.  An appropriate focus on the right consumer indicators and metrics ensures that how we measure financial inclusion is an actual reflection of the behaviour and value derived of households and individuals. 

MAP is a multi-country initiative that supports financial inclusion through a process of evidence-based analysis feeding into a financial inclusion roadmap jointly implemented by a range of local stakeholders. MAP was initiated by UNCDF and is implemented in partnership with FinMark Trust and the Centre for Financial Regulation and Inclusion (Cenfri). In each country, MAP brings together a broad range of stakeholders from within government, the private sector, and the donor community to create a set of practical actions aimed at extending financial inclusion tailored to that country.