Why new data on financial inclusion makes Melinda Gates want to 'stand up and cheer'

DEVEX
Catherine Cheney

Melinda Gates at last year’s Business and Philanthropy Leaders’ Forum organized by U.N. Women. Photo by: Ryan Brown / U.N. Women / CC BY-NC-ND

On her first trip to India, philanthropist Melinda Gates met a woman who held a secret in her sari. It was a razor blade. She bought it with a few rupees, and kept it from her husband so that he would not use it to shave. She wanted it sharp and clean to cut the umbilical cord of the child she was carrying.

“For every marginal dollar a woman gets in her hands, she’s twice as likely to plow it back into her family, and it’s absolutely transformative,” Gates said at an event Wednesday co-hosted by the Bill & Melinda Gates Foundation and the McKinsey Global Institute, which released a report on the impact of digital finance in the developing world.

“Digital Finance for All” puts a “size on the prize” of financial inclusion, says Susan Lund, a partner at McKinsey Global Institute, and an author of the report. Over the next decade, delivering financial access via mobile phones could reach 1.6 billion unbanked people, more than half of them women, and raise the gross domestic product of emerging market economies by $3.7 trillion.

The report provides a data driven account of how women, who are currently disproportionately excluded from the financial system, are more likely to spend on areas such as nutrition, health, and education, once they gain access to financial accounts. Countries with the least financial inclusion have the most to gain, the report argues. Gates said the results of the research make her want to “stand up and cheer” because, as she put it, “women will transform societies.”

While it is widely known that digital finance expands access and reduces costs, the report presents new findings on the impact it could have. New access could yield $4.2 trillion in new deposits, $2.1 trillion in new credit, and 95 million new jobs, the study found. Authors drew on findings from seven countries, ranking the benefits they would see from highest to lowest as Nigeria, India, Ethiopia, Pakistan, Brazil, Mexico and China.

“What we have seen, from a number of random controlled trials around the globe, is with the right kinds of tools in their hands it actually does buffer low income people from risk and allow them to take advantage of opportunity and that creates a really encouraging cycle that allows for growth in GDP,” said Rodger Voorhies, director of the Financial Services for the Poor Initiative at the Gates Foundation.

But in order “to build an inclusive digital financial system that works for the whole population not just half the population,” there must be regulations in place to signal to private sector actors how they can organize themselves and what they can expect. The right kinds of digital infrastructure, which is low-cost, robust, and open to nonbanked players, is also necessary, he said.

The report will drive a few new approaches at the Gates Foundation, said Voorhies, explaining that the foundation will increase its engagement with the private sector, step up its emphasis on ensuring the right infrastructure is in place, and translate this evidence base around the impact of financial services “into pro-poor regulations.”

The study should inspire governments and companies to create economies in which digital payments are widely available, said Ruth Goodwin-Groen, managing director of the Better Than Cash Alliance, which also released a report Wednesday. The study maps 10 accelerators for digital economies including establishing interoperability, developing a unique identification program, and digitizing government payment and receipts.

“The whole question of financial inclusion, working towards unlocking all of this possibility, from the regulatory dimension to the user friendly dimension, is of the essence of development,” Inter-American Development Bank President Luis Alberto Moreno told Devex following the panel.

McKinsey Global Institute plans to take the conversation beyond New York, where key stakeholders are gathered for the United Nations General Assembly, Clinton Global Initiative, and side events. Over the next 12 months, McKinsey will host events around the world, focusing on those seven countries. Lund told Devex, “we really want to put a fact base out there, but we also want to start a conversation that leads to action.”