The 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report and Scorecard evaluates access to and usage of affordable financial services across 21 geographically and economically diverse countries.

The FDIP Report and Scorecard seek to answer a set of fundamental questions about today’s global financial inclusion efforts, including: 1) Do country commitments make a difference in progress toward financial inclusion?; 2) To what extent do mobile and other digital technologies advance financial inclusion?; and 3) What legal, policy, and regulatory approaches promote financial inclusion?

John D. Villasenor, Darrell M. West, and Robin J. Lewis analyzed the financial inclusion landscape in Afghanistan, Bangladesh, Brazil, Chile, Colombia, Ethiopia, India, Indonesia, Kenya, Malawi, Mexico, Nigeria, Pakistan, Peru, the Philippines, Rwanda, South Africa, Tanzania, Turkey, Uganda, and Zambia. Countries received scores and rankings based on 33 indicators spanning four dimensions: country commitment, mobile capacity, regulatory environment, and adoption.

The authors’ analysis also provides several takeaways about how to best expand financial inclusion across the world:

• Country commitment is fundamental.
• The movement toward digital financial services will accelerate financial inclusion.
• Geography generally matters less than policy, legal, and regulatory changes, although some regional trends in terms of financial services provision are evident.
• Central banks, ministries of finance, ministries of communications, banks, nonbank financial providers, and mobile network operators play major roles in achieving greater financial inclusion.
• Full financial inclusion cannot be achieved without addressing the financial inclusion gender gap.

This year’s Report and Scorecard is the first of a series of annual reports examining financial inclusion activities around the world.

View the full report and a full compendium of the country rankings here.

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Editor’s note: This post is part of a series on the Brookings Financial and Digital Inclusion Project, which aims to measure access to and usage of financial services among individuals who have historically been disproportionately excluded from the formal financial system. To read the first annual FDIP report, learn more about the methodology, and watch the 2015 launch event, visit the 2015 Report and Scorecard webpage.

Convenient access to banking infrastructure is something many people around the world take for granted. Yet while the number of people outside the formal financial system has substantially decreased in recent years, 2 billion adults still do not have an account with a formal financial institution or mobile money provider.¹

This means that significant opportunities remain to provide access to and promote use of affordable financial services that can help people manage their financial lives more safely and efficiently.

To learn more about how countries can facilitate greater financial inclusion among underserved groups, the Brookings Financial and Digital Inclusion Project (FDIP) sought to answer the following questions: (1) Do country commitments make a difference in progress toward financial inclusion?; (2) To what extent do mobile and other digital technologies advance financial inclusion; and (3) What legal, policy, and regulatory approaches promote financial inclusion?

To address these questions, the FDIP team assessed 33 indicators of financial inclusion across 21 economically, geographically, and politically diverse countries that have all made recent commitments to advancing financial inclusion. Indicators fell within four key dimensions of financial inclusion: country commitment, mobile capacity, regulatory commitment, and adoption of selected traditional and digital financial services.

In an effort to obtain the most accurate and up-to-date understanding of the financial inclusion landscape possible, the FDIP team engaged with a wide range of experts — including financial inclusion authorities in the FDIP focus countries — and also consulted international non-governmental organization publications, government documents, news sources, and supply and demand-side data sets.

Our research led to 5 overarching findings.

1. Country commitments matter.

   Not only did our 21 focus countries make commitments toward financial inclusion, but countries generally took these commitments seriously and made progress toward their goals. For example, the top five countries within the scorecard each completed at least one of their national-level financial inclusion targets. While correlation does not necessarily equal causation, our research supports findings by other financial inclusion experts that national-level country commitments are associated with greater financial inclusion progress. For example, the World Bank has noted that countries with national financial inclusion strategies have twice the average increase in the number of account holders as countries that do not have these strategies in place.

2. The movement toward digital financial services will accelerate financial inclusion.

   Digital financial services can provide customers with greater security, privacy, and convenience than transacting via traditional “brick-and-mortar” banks. We predict that digital financial services such as mobile money will become increasingly prevalent across demographics, particularly as user-friendly smartphones become cheaper² and more widespread.³

   Mobile money has already driven financial inclusion, particularly in countries where traditional banking infrastructure is limited. For example, mobile money offerings in Kenya (particularly the widely popular M-Pesa service) are credited with advancing financial inclusion: The Global Financial Inclusion (Global Findex) database found that the percentage of adults with a formal account in Kenya increased from about 42 percent in 2011 to about 75 percent in 2014, with around 58 percent of adults in Kenya having used mobile money within the preceding 12 months as of 2014.

3. Geography generally matters less than policy, legal, and regulatory changes, although some regional trends in terms of financial services provision are evident.

   Regional trends include the widespread use of banking agents (sometimes known as correspondents)⁴ in Latin America, in which retail outlets and other third parties are able to offer some financial services on behalf of banks,⁵ and the prevalence of mobile money in sub-Saharan Africa. However, these regional trends aren’t absolute: For example, post office branches have served as popular financial access points in South Africa,⁶ and the GSMA’s “2014 State of the Industry” report found that the highest growth in the number of mobile money accounts between December 2013 and December 2014 was in Latin America. Overall, we found high-performing countries across multiple regions and using multiple approaches, demonstrating that there are diverse pathways to achieving greater financial inclusion.

4. Central banks, ministries of finance, ministries of communications, banks, non-bank financial providers, and mobile network operators have major roles in achieving greater financial inclusion. These entities should closely coordinate with respect to policy, regulatory, and technological advances.

   With the roles of public and private sector entities within the financial sector becoming increasingly intertwined, coordination across sectors is critical to developing coherent and effective policies. Countries that performed strongly on the country commitment and regulatory environment components of the FDIP Scorecard generally demonstrated close coordination among public and private sector entities that informed the emergence of an enabling regulatory framework. For example, Tanzania’s National Financial Inclusion Framework⁷ promotes competition and innovation within the financial services sector by reflecting both public and private sector voices.⁸

5. Full financial inclusion cannot be achieved without addressing the financial inclusion gender gap and accounting for diverse cultural contexts with respect to financial services.

   Persistent gender disparities in terms of access to and usage of formal financial services must be addressed in order to achieve financial inclusion. For example, Middle Eastern countries such as Afghanistan and Pakistan have demonstrated a significant gap in formal account ownership between men and women. Guardianship and inheritance laws concerning account opening and property ownership present cultural and legal barriers that contribute to this gender gap.⁹

   Understanding diverse cultural contexts is also critical to advancing financial inclusion sustainably. In the Philippines, non-bank financial service providers such as pawn shops are popular venues for accessing financial services.¹⁰ Leveraging these providers as agents can therefore be a useful way to harness trust in these systems to increase financial inclusion.

To dive deeper into the report’s findings and compare country rankings, visit the FDIP interactive. We also welcome feedback about the 2015 Report and Scorecard at FDIPComments@brookings.edu.

¹ Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer, and Peter Van Oudheusden, “The Global Findex Database 2014: Measuring Financial Inclusion around the World,” World Bank Policy Research Working Paper 7255, April 2015, VI, http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/15/090224b082dca3aa/1_0/Rendered/PDF/The0Global0Fin0ion0around0the0world.pdf#page=3.

² Claire Scharwatt, Arunjay Katakam, Jennifer Frydrych, Alix Murphy, and Nika Naghavi, “2014 State of the Industry: Mobile Financial Services for the Unbanked,” GSMA, 2015, p. 24, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf.

³ GSMA Intelligence, “The Mobile Economy 2015,” 2015, pgs. 13-14, http://www.gsmamobileeconomy.com/GSMA_Global_Mobile_Economy_Report_2015.pdf.

⁴ Caitlin Sanford, “Do agents improve financial inclusion? Evidence from a national survey in Brazil,” Bankable Frontier Associates, November 2013, pg. 1, http://bankablefrontier.com/wp-content/uploads/documents/BFA-Focus-Note-Do-agents-improve-financial-inclusion-Brazil.pdf.

⁵ Alliance for Financial Inclusion, “Discussion paper: Agent banking in Latin America,” 2012, pg. 3, http://www.afi-global.org/sites/default/files/discussion_paper_-_agent_banking_latin_america.pdf.

⁶ The National Treasury, South Africa and the AFI Financial Inclusion Data Working Group, “The Use of Financial Inclusion Data Country Case Study: South Africa – The Mzansi Story and Beyond,” January 2014, http://www.afi-global.org/sites/default/files/publications/the_use_of_financial_inclusion_data_country_case_study_south_africa.pdf.

⁷ Tanzania National Council for Financial Inclusion, “National Financial Inclusion Framework: A Public-Private Stakeholders’ Initiative (2014-2016),” 2013, pgs. 19-22, http://www.afi-global.org/sites/default/files/publications/tanzania-national-financial-inclusion-framework-2014-2016.pdf.

⁸ Simone di Castri and Lara Gidvani, “Enabling Mobile Money Policies in Tanzania,” GSMA, February 2014, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2014/03/Tanzania-Enabling-Mobile-Money-Policies.pdf.

⁹ Mayada El-Zoghbi, “Mind the Gap: women and Access to Finance,” Consultative Group to Assist the Poor, 13 May 2015, http://www.cgap.org/blog/mind-gap-women-and-access-finance.

¹⁰ Xavier Martin and Amarnath Samarapally, “The Philippines: Marshalling Data, Policy, and a Diverse Industry for Financial Inclusion,” FINclusion Lab by MIX, June 2014, http://finclusionlab.org/blog/philippines-marshalling-data-policy-and-diverse-industry-financial-inclusion.

Editor’s Note: The Center for Technology Innovation released the 2015 Financial and Digital Inclusion Project (FDIP) Report on August 26^th. TechTank has previously covered the FDIP launch event and outlined the report’s overall findings. Over the next two months, TechTank will take a closer look at the report’s findings by country and by region, beginning with today’s post on India. 

With about 21 percent of the world’s entire unbanked adult population residing in India as of 2014, the country has tremendous opportunities for growth in terms of advancing access to and use of formal financial services.

In the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, we detail the progress achieved and possibilities remaining for India’s financial services ecosystem as it moves from a heavy reliance on cash to an array of traditional and digital financial services offered by diverse financial providers.

As noted in the 2015 FDIP Report, government-led initiatives to promote financial inclusion have advanced access to financial services in India. Ownership of formal financial institution and mobile money accounts among adults in India increased about 18 percentage points between 2011 and 2014. Recent regulatory changes and public and private sector initiatives are expected to further promote use of these services.

In this post, we unpack the four components of the 2015 FDIP Scorecard — country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services — to highlight India’s achievements and possible next steps toward greater financial inclusion.

Country commitment: An unprecedented year with no sign of slowing

India’s national-level commitment to promoting financial inclusion earned it a “country commitment” score of 100 percent. A historic government initiative helped India garner a top score: In August 2014, Prime Minister Narendra Modi launched the “Pradhan Mantri Jan-Dhan Yojana,” the Prime Minister’s People’s Wealth Scheme (PMJDY). This effort — arguably the largest financial inclusion initiative in the world — “envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension facility,” in addition to providing beneficiaries with an RuPay debit card.

As part of this effort, the program aimed to provide 75 million unbanked adults in India with accounts by late January 2015. As of September 2015, about 180 million accounts had been opened; about 44 percent of these accounts did not carry a balance, down from about 76 percent in September 2014.

The PMJDY initiative is a component of the JAM Trinity, or “Jan-Dhan, Aadhaar and Mobile.” Under this approach, government transfers (also known as Direct Benefit Transfers, or DBT) will be channeled through bank accounts provided under Jan-Dhan, Aadhaar identification numbers or biometric IDs, and mobile phone numbers.

The Pratyaksh Hanstantrit Labh (PaHaL) program is a major DBT initiative in which subsidies for liquefied petroleum gas can be linked to an Aadhaar number that is connected to a bank account or the consumer’s bank details. As of July 2015, about $2 billion had been channeled to beneficiaries in 130 million households across the country.

Mobile capacity: Ample opportunity for digital services, but limited awareness and use

India received 16^th place (out of the 21 countries considered) in the 2015 FDIP Report and Scorecard’s mobile capacity ranking. India’s mobile money landscape features an extensive array of services, and the licensing of new payments banks (discussed below) may drive the entry of new players and products that can improve low levels of awareness and adoption of digital financial services.

An InterMedia survey conducted from September to December 2014 found that while 86 percent of adults owned or could borrow a mobile phone, only about 13 percent of adults were aware of mobile money. Awareness of mobile money is increasing — the 13 percent figure is double that of the first wave of the survey, which concluded in January 2014 — but uptake remains low. The Global Financial Inclusion (Global Findex) database found only 2 percent of adults in India had a mobile money account in 2014.

Implementing interoperability across mobile money offerings, increasing 3G network coverage by population, and enhancing unique mobile subscribership could boost India’s mobile capacity score in future editions of the FDIP report.

Regulatory environment: Opening up the playing field to non-bank entities

India tied for 7^th place on the regulatory environment component of the 2015 Scorecard. The country’s recent shift to a more open financial landscape contributed to its strong score, although more time is needed to see how recent regulations will be operationalized.

India has traditionally maintained tight restrictions with respect to which entities are involved in financial service provision. Non-banks could manage an agent network on behalf of a bank as business correspondents or issue “semi-closed” wallets that did not permit customers to withdraw funds without transferring them to a full-service bank account. These restrictions likely contributed to the country’s slow and limited adoption of mobile money services.

However, 2014 brought significant changes to India’s regulatory landscape. The Reserve Bank of India’s November 2014 Payments Banks guidelines were heralded as a major step forward for increasing diversity in the financial services ecosystem. These guidelines marked a significant shift from India’s “bank-led” approach by providing opportunities for non-banks such as mobile network operators to leverage their distribution expertise to advance financial access and use among underserved groups.

While these institutions cannot offer credit, they can distribute credit on behalf of a financial services provider. They may also distribute insurance and pension products, in addition to offering interest-bearing deposit accounts.

We noted in the 2015 FDIP Report that timely approval of license applications for prospective payments banks, particularly mobile network operators, would be a valuable next step for India’s financial inclusion path. In August 2015, the Reserve Bank of India approved 11 applicants, including five mobile network operators, to launch payments banks within the next 18 months. As noted in Quartz India, the “underlying objective is to use these new banks to push for greater financial inclusion.” India has also made strides in terms of establishing proportionate “know-your-customer” requirements for financial entities, including payments banks.

While India has made significant progress in terms of promoting a more enabling regulatory environment, room for improvement remains. For example, concerns have been raised regarding the low commission rate for banks distributing DBT, with many experts noting that a higher commission would enhance the ability of these banks to operate sustainably.

Adoption: Access is improving, but promoting use is key

India ranked 9^th for the adoption component of the 2015 Scorecard. Recent studies have demonstrated that adoption of formal financial services among traditionally underserved groups is improving. For example, InterMedia surveys conducted in October 2013 to January 2014 and September to December 2014 found that the most significant increase in bank account ownership was among women, particularly women living below the poverty line. Still, further work is needed to close the gender gap in account ownership.

As noted above, adoption of digital financial services such as mobile money is minimal compared with traditional bank accounts (0.3 percent compared with 55 percent, according to the September to December 2014 InterMedia survey); nonetheless, we believe that the introduction of payments banks, combined with government efforts to digitize transfers, will facilitate greater adoption of digital financial services.

While PMJDY has successfully promoted ownership of bank accounts, incentivizing use of these services is critical for achieving true financial inclusion. Dormancy rates in India are high — about 43 percent of accounts had not been deposited into or withdrawn from in the previous 12 months, according to the 2014 Global Findex.

More time may be needed for individuals to understand how their new accounts function and, equally importantly, how their new accounts are relevant to their daily lives. A February 2015 survey designed by India’s Ministry of Finance, MicroSave, and the Bill & Melinda Gates Foundation found about 86 percent of PMJDY account holders reported the account was their first bank account. While this survey is not nationally representative, it provides some context as to why efforts to promote trust in and understanding of these new accounts will be key to the success of the program.

An opportunity for promoting adoption of digital financial services was highlighted during the public launch of the 2015 Report and Scorecard: As of June 2015, it was estimated that fewer than 6 percent of merchants in India accepted digital payments. The U.S. government is partnering with the government of India to promote the shift to digitizing transactions, including at merchants.

The next annual FDIP Report will examine the outcomes of such initiatives as we assess India’s progress toward greater financial inclusion. Suggestions and other comments regarding the FDIP Report and Scorecard are welcomed at FDIPComments@brookings.edu.