What s new in the financial inclusion literature

What’s new in the financial inclusion literature?

An IMF conference on financial inclusion showed that one research methodology doesn’t fit all. This post summarises some new developments which were showcased at a recently available IMF conference on financial inclusion.


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The other day, I had the honour and pleasure of co-organising a conference on financial inclusion at the IMF with Andrea Presbitero and my former colleague Sole Martinez Peria. Nine papers, mostly work happening, were presented. Together they gave nice insights on where in fact the financial inclusion literature stands. These papers also showed the way the literature has matured in the last a decade, with big questions no more receiving simple-but-qualified answers, and new questions arising.


While evidence from multiple randomised control trials around the world shows “a consistent pattern of modestly positive, however, not transformative, effects” and aggregate evidence points to distributional, instead of growth-enhancing, effect a fresh paper presented by Cynthia Kinnan demonstrates when contemplating the impact of microcredit, heterogeneity is key. Among the differentiating factors is whether borrowers are entrepreneurial, and therefore utilize the loan for investment instead of consumption. As frequently in economics, one size will not fit all and targeting of broad population groups with credit will surely not supply the expected return in investment and growth.

The uptake of microcredit may also be constrained by religious beliefs. A paper by Dean Karlan and co-authors implies that supplying a Sharia-compliant lending product increased the application form rate by religious people in Jordan, and these borrowers were also less interest-rate-sensitive. Interestingly, the uptake didn’t appear to depend on the entity authorising the Islamic product. This may show the tolerance of religious Muslims for different authorities, or the need for labelling a lending product as Sharia-compliant.

Observational data

Several papers used observational data to explore the impact of financial inclusion programmes. Sumit Agarwal and co-author have studied the Pradhan Mantri Jan Dhan Yojna (“JDY”) programme, launched in India in 2014. It’s the world’s largest financial inclusion programme, leading to 225 million new accounts. While using these accounts increased only slowly after account opening, the authors document a shift from informal resources of finance and offer indications of more consumption smoothing and savings.

Claire Celerier and Adrien Matray show that branch expansion following deregulation between 1994 and 2010 in america led to higher wealth accumulation by low-income people, suggesting that geographic access matters.

Another paper by Sumit Agarwal and (other) co-authors implies that a financial inclusion program establishing saving and credit associations (SACCOs) across Rwanda led to a higher take-up of new loans and positive real effects. Moreover, however, it also resulted in making many of these new SACCO borrowers bankable, permitting them to switch to banks after a short loan with the SACCOs. Given the fragmentation of African banking systems, such integration of different segments of the economic climate, supported by the credit registry, is welcome.

Mobile money

There have been also two papers on mobile profit Kenya. In a single, my former Tilburg colleagues show that sometimes small (administrative or monetary) barriers can avoid the uptake of better payment tools by smaller businesses; after they adopt these tools, however, they appear to utilize them frequently.

In another paper, Billy Jack and co-author show that encouraging parents to use formal savings accounts via cellular phone increases savings for senior high school tuition, and helps it be much more likely that kids are delivered to high school.

While none of the findings may seem groundbreaking, they help us make progress in understanding the barriers to the usage of financial services and the impact of with them.

What have we learned?

I’ve three take-aways from these papers.

  • First, the distinction between credit, savings and payment services is becoming fluid.

Worries that the improvement in usage of simple mobile money-based transaction services won’t lead to the usage of other financial services is probably not overstated.

  • Second, interventions to improve usage of financial services need to exceed monetary and geographic barriers and in addition address behavioural constraints (including nudges).
  • Finally, a methodological point – I believe we are beyond the stage where one methodology could be declared the ‘gold standard’ in this literature.

Only a combined mix of randomised control trials, usage of observational data coupled with natural or policy experiments, and theory-motivated structural models can offer us the required insights and policy recommendations to push the financial inclusion agenda forward. Plus data – and as so many, I am excited to another round of the Global Findex, to be released in a couple weeks.

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