Financial inclusion has beneficial economic impacts according to recent evidence. At the microeconomic level, access to credit, savings, insurance, and payments helps businesses and households. Credit enables investment and risk-taking. Savings allows for consumption smoothing and building working capital. Insurance increases risk-taking. Lower transaction costs from mobile payments helps share risks. Locally, financial access improves local economies. Nationally, greater financial depth is positively correlated with economic growth and reduced inequality. Additional indirect benefits include more effective social policies and new business models addressing development priorities.

1. Financial Inclusion and Development:
Recent Impact Evidence
Bob Cull, Tilman Ehrbeck and Nina Holle
June 2, 2014

2. 1. A Vast Majority of Poor Households Live and Work
in the Informal Economy
2. Increasingly Robust Evidence of Beneficial
Economic Impact
• Microeconomic Level
• Local Economic Activity
• Macroeconomic Level
3. Additional Indirect Benefits
2
Agenda/ Outline of the paper

3. 50+%
w/out formal
financial
account
3
~50-60%
with
informal
jobs
40+%
below
$2/day
A Vast Majority of Poor Households Live and Work in
the Informal Economy

4. Microeconomic Level: Credit
4
Businesses benefit from access to credit, linkage to broader welfare less clear
Mongolia (2010):
• Household Welfare: ++
• Business outcomes: ++
India/Spandana
(2009/2013):
• Household Welfare: 0
• Business Outcomes: +
SA/Consumer Credit
(2010):
• Household Welfare: ++
• Business outcomes: +
Mexico/Compartamos
(2013):
• Household Welfare: +
• Business outcomes: ++
Bosnia (2012):
• Household Welfare: -
• Business outcomes: ++
Phillipines (2011)
• Household Welfare: 0
• Business Outcomes: +
Morocco (2012):
• Household Welfare: 0
• Business outcomes: +

5. 5
Business investments of
women (Kenya)*
Health savings and
investments (Kenya)**
* Dupas, Pascaline et al. (2012a). Savings constraints and microenterprise development: evidence from a field experiment in Kenya. AEJ: Applied Economics. Forthcoming.
** Dupas, Pascaline et al. (2012b). Why don’t the poor save more? Evidence from health savings experiments, NBER Working Paper.
*** Brune, Lasse et al. (2013): Commitments to save. A field experiment in rural Malawi. Working Paper.
0
100
Average daily
business
investment
Food
expenditures
Private
expenditures
+ 38%
+ 13%
+ 37%
0
100
200
Health savings Preventative
health
investments
Preventative
health
investments
(commitment
account)
+ 138%
+ 66% + 75%
Agricultural activity
(Malawi)***
0
100
Agricultural
input
Crop output Expenditures
+ 27%
+ 28% + 17%
Without access to c. savings With access to c. savings
Without access to savings With access to savings
Without access to savings With access to savings
Microeconomic Level: Savings
Savings help manage cash flow spikes, smooth consumption and build working capital

6. 6
Agricultural activities (Ghana) * Protection against negative impact of
natural disasters (Kenya) **
* Karlan, Dean et al. 2012. Agricultural Decisions after relaxing credit and risk constraint, NBER Working Paper.
** Janzen, Sarah and Carter, Michael. 2012. The impact of microinsurance on asset accumulation and human capital investments: Evidence from a drought in Kenya. Working Paper.
0
100
Investments in
cultivation
Use of chemical
fertilizer
Land preparation
costs (incl. shift
towards riskier crop)
+ 13%
+ 24%
+ 13%
Without access to insurance With access to insurance Without access to insurance With access to insurance
- 43%- 18% - 11%
0
100
Asset sales Reduction of meals Dependency on food aid
Microeconomic Level: Insurance
Access to insurance increases risk appetite and protects livelihoods

7. • Sharing risk in Kenya (Jack/Suri 2014)
• M-Pesa users were able to fully absorb negative income
shocks through increase in remittances
• Consumption of households without access to M-Pesa
fell on average 7%
• Reducing transaction costs in Niger (Aker et al.
2010)
• Reductions in costs of cash transfer programs (both for
implementing agency and recipient)
• Recipients’ cost savings resulted in diversification of
expenditures (including food)
7
Microeconomic Level: Payments
Mobile money reduces households’ transaction costs and improves ability to share risk

8. • Opening bank branches in unbanked locations
reduced rural poverty in India (Burgess and
Pande 2005)
• Opening Banco Azteca branches in retail stores
had a significant impact on regional economy in
Mexico (Bruhn and Love 2013, Ruiz 2013)
• 7% increase in overall income levels
• Households were better able to smooth
consumption and accumulated more durable goods
8
Local Economic Activity
Financial access improves the local economy

9. 9
GDP Growth Rates and Financial Depth 1980-2003
Source: Honohan, Patrick, and Thorsten Beck. 2007. Making Finance Work for Africa. Washington, D.C.: World Bank Group.
Macroeconomic Level
Positive correlation between financial depth and growth
Correlation less clear if:
− Economies with weak
institutional framework
− High inflation
environments
− Very low and very high
levels of financial
intermediation
− Short time horizon

10. 10
ARG
AUS
AUT
BEL
BGD
BOL
BRA
CAN
CHE
CHL
CIV
CMR
COLCRI
DNK
DOM
ECU
EGY
ESP
ETH
FIN FRA
GBR
GHA
GRC
GTM
HKG
HND
HUN IDN
IND
IRL
IRN
ITA
JAM
JOR
JPN
KORLKA
LSO
LUX
MDG
MEX
MUS
MYS
NER
NGA
NLD
NOR
NPL
NZL
PAK
PAN
PER
PHL
PRT
ROM
SEN
SGP
SLE
SLV
SWE
THA
TTO
TUN
TUR
TZA
UGA
URY USA
VEN
ZMB
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
-3 -2 -1 0 1 2
Change in Gini
coefficient
Private credit to GDP
Source: Beck, Thorsten, Aslı Demirgüç-Kunt ,and Ross Levine. 2007. “Finance, Inequality, and the Poor,” Journal of Economic
Growth, Vol. 12 (1).
Access to credit and income equality
Private credit to GDP
Change in Gini
coefficient
Macroeconomic Level
Financial deepening reduces inequality

11. • More effective and efficient execution of other
social policies
• Payment of CCTs (e.g. Bolsa Familia reduced transaction
costs from 14.7% to 2.6%)
• Enabling new private-sector business models that
help address development priorities
• E.g. Microleasing for off-grid solar power,
community-based water stations (Kenya, Tanzania)
11
Additional indirect benefits

12. Advancing financial inclusion to improve the lives of the poor
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