Keynote Address by Judith Karl on Financial Health and its Relevance for the Developing World

  • November 14, 2019

  • Singapore, Singapore

[...] you can expect UNCDF to work towards reaching a range of customer segments—including women, youth, seniors, migrants, informal workers and refugees—to help them earn more, plan and spend wisely, save appropriately, borrow healthily and manage risks well.

Judith Karl
Executive Secretary, UNCDF

Good Morning. I am delighted to be here today in Singapore to open this important learning event. Before I start, I would like to take a moment to extend my gratitude to all of you for making the time to be here, and to consider what financial health truly means for the people and communities we serve, as well as what we can do to enhance their financial health.

As the UN’s capital investment arm for the world’s 47 least-developed countries. UNCDF offers “last mile” finance models that unlock public and private resources, especially at the domestic level, to reduce poverty and support local economic development.

And our efforts in the LDCs reflect our core vision—that by deploying innovative finance approaches that successfully crowd-in public and private finance, we can create the demonstration effects that develop and transform markets; shift the dynamics of financing towards the local level; and, ultimately catalyze the system change that helps ensure that we truly leave no one behind.

As I see it, helping deliver and strengthen financial health is a natural and important part of our mission to make finance work for the poor, particularly for those in the last mile.

Now, we are all more or less clear about what financial inclusion means, as well as the progress we have witnessed and contributed to so far. Over the last few years, we have dedicated our time and efforts to expanding access to financial services and driving its usage.

According to the Global Findex, 1.2 billion adults have obtained an account since 2011, including 515 million since 2014. Between 2014 and 2017, the share of adults with a financial account rose globally from 62 percent to 69 percent.

Developing countries during the same period saw this proportion increase from 54% to 63%. These numbers show that we are making progress in bringing many unbanked or underbanked adults into the formal financial system.

And as we have achieved these early gains in financial inclusion, the metrics that were used to measure success at the time were appropriate: from the number of account holders, to the number of withdrawals and deposits; from the number of digital payments to existing gender gaps and so on.

These indicators helped us measure the extent of financial inclusion. But what did they tell us about how a person, family or community is able to navigate their financial lives?

How does knowing the number of account holders tell us whether a family or an individual is able to withstand financial calamity without liquidating their assets? How does the number of withdrawals tell us if a family is able to send its children to school? How does the number of digital payments tell us if a couple can pay for medical needs without completely going under?

Ultimately, how do we know that access to a bank account or the usage of a deposit scheme or digital credit translates into actually improving the lives of people; whether it is placing more income in their hands, lifting them out of poverty, or making societies more equal, all of which would support achievement of the Sustainable Development Goals?

This is where financial health comes in. There are many definitions of financial health, but the one I would like to use is the one provided by the Consumer Financial Protection Bureau, or the CFPB, in the United States.

According to the CFPB, financial well-being or financial health describes a condition wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life. This definition is a reflection of an individual’s resilience, security and agency, and by extension reflects the resilience and strength of the community, society and economy that this individual inhabits.

So, now that it is incumbent on the economic development and financial services sectors to rethink what their end goal should be, the critical question is how do we need to approach our efforts in order to advance financial health, particularly for those who have been traditionally underserved by both the real economy and the global financial ecosystem.

There has been some productive thinking around how to define and measure financial health. This includes UNCDF and BFA’s work on Impact Pathways, which establishes linkages between financial services and its real-world impact on people’s lives, while connecting these impacts to the SDGs.

And I am proud to say that UNCDF is also putting some of this thinking into action, notably through our digital strategy: “Leaving No One Behind in the Digital Era.”

Over the past year, with the support of the MetLife Foundation, we established Financial Innovation Labs in Malaysia and China to improve the financial health of low- and moderate-income people. This initiative has three distinct but related themes: customer value, institutional value and an ecosystem approach. We also deployed a range of instruments that include blended finance, grants, advisory services and data, as well as analytical support to help the private sector and regulators drive financial health outcomes for low- and moderate-income people; notably for women, micro businesses, informal workers, youth and seniors.

Additionally, we launched a pilot programme in eight countries earlier this year that utilizes a customized scorecard to measure the inclusiveness of a country’s digital economy—assessing such factors as government intervention, mobile infrastructure, the innovation ecosystem and the active participation of the public and private sectors in digital and financial skills development.

As a result of this work, UNCDF has learned some important lessons on financial health, specifically as it relates to developing countries and the LDCs in particular. Let me highlight three of those lessons.

First, we need to understand the trade-offs of digital innovations to truly deliver on financial health. On the one hand, these innovations are making transactions, services and access to financial tools simpler, faster and more affordable, which in turn has enabled economic participation at an unprecedented scale. Many women, youth and seniors—population segments that have historically been at the greatest risk of being left behind—are now benefitting from the inclusivity that modern technological and business models are making possible. Yet those same innovations are driving exclusionary profiling, technological biases and data protection. So, no one should ever make the mistake of assuming that digital innovation is automatically synonymous with financial inclusion.

The challenge is to reconcile technology’s benefits with its ills to ensure that many more end consumers are being reached in a meaningful way, and that their lives—their financial lives and their everyday lives—are better for it. Whether and how these tradeoffs are taken into account as we design and deliver these technological tools becomes very important.

Second, if we are going to cater to the end consumer with the goal of making her or him more financially healthy and resilient, then we absolutely have to understand our consumer on a fundamental level. The world of behavioral economics teaches us that consumers often act antithetically to their true desires, resorting to short-term thinking rather than long-term planning, and perhaps needing support to cultivate financially healthy habits.

So, we will need more behavioral experiments and research engagements that will help us generate a strong evidence base to better inform our financial interventions, whether they are automatic income deductions or savings reminders.

The third lesson is that public and private sector partnerships are cross-sectoral.

There is a tremendous business case to be explored in financial health. Financially healthy customers will save more, borrow and repay in a healthy fashion, and insure themselves adequately to mitigate risk. These are all great for the private sector’s bottom line and would support a healthy financial institution or a fintech.

For regulators, financial health has always been paramount. The security and wellbeing of the end consumer directly influences regulatory policies on client and data protection principles.

But financial health does not exist in a vacuum. It is inextricably linked to the real economy. Financial health can drive good personal health and education outcomes, as well as reduce poverty and inequalities. And of course, if we want to achieve a broad array of the SDGs—whether it is good health and well-being, quality education, or reduced inequalities—than the financial health of end consumers is a necessary objective.

This is precisely why governments, the private sector and NGOs, as well as the multilateral/donor community need to tie the agenda of financial health into other sectors such as education, health and labor; consequently achieving several SDGs together. And we will need significant investments in health, education and employment that is also connected to a concerted cross-sectoral effort to improve the financial lives of our end consumers.

At UNCDF, our mission involves making finance work for the poor and to achieve the signal promise of the SDGs—to leave no one behind. As for our Leaving No One Behind in the Digital Era strategy, its core principle is that financial inclusion is not an end, but a means to an end.

That is why you can expect UNCDF to work towards reaching a range of customer segments—including women, youth, seniors, migrants, informal workers and refugees—to help them earn more, plan and spend wisely, save appropriately, borrow healthily and manage risks well.

And we cannot pursue this important work in advancing financial health without our partners -both the private sector and regulators- as well as our counterparts – other multilaterals and donors.

In closing, I’d like to extend my thanks to the Monetary Authority of Singapore, represented by its Executive Director Abigail Ng, for your support of UNCDF’s vision on financial health. UNCDF is proud of your work to propel the financial health of Singaporeans, and we hope to model our efforts on yours.

To the MetLife Foundation for your continued support of UNCDF’s financial health work in Asia. Your worldwide engagements on financial health are testimony to your commitment, and UNCDF is looking forward to working with you on this common agenda.

To MicroSave Consulting for your support in co-organizing this learning event and for sharing your vision of financial health with us.

To the private and public sector present here, we thank you and we promise UNCDF’s support and partnership in perpetuating an inclusive digital economy that puts the financial health of end consumers front and center.

And finally, to the UNCDF team in attendance, as we approach the final decade of the SDGs, let’s continue to deliver on our promise to leave no one behind.