Speech

Opening Remarks — IMF-CGD Event on “Financial Inclusion: Macroeconomic and Regulatory Challenges”

April 11, 2016

April 11, 2016

Introductory Remarks

Good morning.

It is my great pleasure to open today's conference on financial inclusion, which we are organizing jointly with the Center for Global Development. Thank you, Nancy, for joining forces with us on this important topic.

The CGD has recently launched an important report on how to deal with regulatory challenges that impede financial inclusion, an area that is of deep interest to us.

We have also been partnering with the World Bank, the United Nations, the Gates Foundation, the Alliance for Financial Inclusion, the Financial Stability Board, and many others. This event brings our partners together as panelists and participants.

Why is financial inclusion important? Why now?

Financial inclusion is distinctly moving up the reform agenda, both at the international level and in individual countries. The post-2015 Development Agenda squarely puts financial inclusion as a key objective for United Nations member countries. To date, more than 60 governments across the world have set financial inclusion as a formal target.

And we know why these governments support this. The balance of evidence from micro-level studies is clear. Greater access to financial services makes a difference in investment, food security, health outcomes, and other aspects of daily life.

But today we are asking: Is financial inclusion macro-relevant?

Besides improving individuals’ lives, does financial inclusion make a significant impact at the country level, or even at the global level?

And if it has an impact, what are the trade-offs and synergies of financial inclusion when it comes to balancing growth and stability? Are there risks that financial inclusion leads to “too much finance?”

To answer these questions, we need to look into data that provide us with evidence on macroeconomic effects of financial inclusion.

We have this data here at the IMF. Our Financial Access Survey, launched in 2009, is a key source of data on access to and use of financial services around the world. The survey covers 189 countries for 11 years, providing a unique set of high-quality, publicly available data on financial inclusion.

Trends in financial inclusion

What can we learn from this treasure trove of data? For example, the survey shows that there are 15 economies in Sub-Saharan Africa where the number of mobile money accounts exceeds the number of depositors in commercial banks.

We also know that deposit accounts at commercial banks in India have grown by half a billion over the past five years.

These are astounding figures, which illustrate the rapid evolution of financial access, especially in emerging markets and low-income economies.

Many of these achievements are due to concerted policy efforts. In India’s case, for example, the government has turned financial inclusion into a key national priority to curb inequality and boost domestic growth. Their agenda envisages universal access to basic banking services by 2018. This is a commendable effort.

Macroeconomic impact

So what do we know about the macroeconomic benefits of financial inclusion? A recent analysis by IMF staff examined the issue using the newly available global datasets.¹

It found that greater financial inclusion has tangible economic benefits, such as higher GDP growth and lower income inequality. By providing access to accounts, credit, infrastructure, women and low income users, financial inclusion helps make growth more inclusive.

What about financial stability? The study finds no evidence that financial stability is threatened by increasing basic access to financial transactions, such as receiving wages and subsidies or making payments. But financial stability risks can arise when it comes to broadening access to credit to a wide section of the population.

Even in this situation, there is hope and good news. Using information on supervisory quality in about 100 countries from the Financial Sector Assessment Program, we find that when supervision is of high quality, broadening credit access actually leads to an increase in financial stability.

So, good supervision can play an important role in promoting financial stability even as access to credit reaches a broader population, raising growth rates and reducing inequality.

New technologies

Along with supervision, a solid enabling regulatory environment is also critical for promoting innovative financial services that reaches large segments of the population. New technologies, especially those driving digital finance, provide immense opportunities for connecting businesses across the world.

Think of a farming cooperative in Bangladesh that sells rice at the highest price to an industrialist in Chile, without any middlemen! But digital finance must go hand-in-hand with advancing financial education and preventing cyber fraud.

Conclusion

Let me conclude.

Despite clear evidence of its benefits to individuals and society as a whole, financial inclusion is often proceeding on an isolated track—more social policy than macro policy.

It is critical that we avoid such a “silo mentality.” Financial inclusion is an integral part of inclusive growth strategues and should be closely integrated into macroeconomic and financial policies.

When financial systems become more inclusive, they help broaden financial markets and make monetary policy more effective. By bringing more sections of the population into the formal sector, the effects of fiscal policy—both tax and expenditures—are broadened.

Importantly, just as growth is slowing down around the world, promoting financial inclusion will go a long way in raising demand—as incomes of the low income population increase and the hollowing out of the middle class is arrested. We do not have to accept the “new mediocre” of anemic growth.

Let me conclude by wishing you very productive discussions today. I am confident they will help guide our efforts in taking the global and national agenda forward.

Thank you!

¹ “Financial Inclusion: Can it Meet Multiple Macroeconomics Goals?” (SDN/15/17) http://www.imf.org/external/pubs/cat/longres.aspx?sk=43163