Financially inclusive ecosystems: the role of government today

Financial inclusion today is about the need to reach more people with more products at lower costs. The term ‘microfinance’, once associated almost exclusively with small-value loans to the poor, is now increasingly used to refer to a broad array of products (including payments, savings, and insurance) tailored to meet the particular needs of low-income individuals. Two separate, but related, developments have spurred this more holistic approach to financial inclusion. First, a growing body of research is demonstrating that poor people use and need a wide array of financial products, not just credit. Second, innovative lower cost business models – especially electronic and agent banking – hold the promise of reaching unbanked populations with a full range of products. Different products present different risks and delivery challenges and it is unlikely that a single class of service providers will effectively provide all the products poor people need. A key challenge is creating the broader, interconnected ecosystem of market actors and infrastructure needed for safe and efficient product delivery to poor people – and defining the role of government in the process. This article first describes the challenges of the broader financial inclusion landscape and then explores three promising roles government can play in developing more financially inclusive ecosystems.