Seeing Joyce Wafuko sitting in her small office at the back of the hardware store she owns, papers stacked on a large table that takes up most of the space in the room, invoices and other notices tacked up on the bulletin boards that line the walls, it would be difficult to imagine the road she has traveled in the last seven years. Joyce lives in a small village outside Mombasa, Kenya’s second largest city, where she and her husband had settled a decade earlier to raise their three children, near both their families. After a few years, her husband had been unable to find steady work in the village and reluctantly had gone to the city to become a policeman. But the money he sent home wasn’t enough to support their family, so Joyce decided to start a business to supplement his earnings. She noticed that her neighbors lacked the supplies to make even the most basic repairs to their homes, so she thought a hardware store would be a good addition to the village.
She was a member of an informal savings and loan group with other women from her village, but the amount she was able to borrow according to the rules of the group was relatively small and not enough to launch her business. When she asked about a larger loan at the local bank branch, the manager told her they didn’t finance “startups” and that she should come back after the business was up and running. When it was her turn to take home the monthly “pot” from her savings group, she put most of the money into starting her business, although in a smaller way than she had originally hoped. Joyce has kept a photograph of her first shop pinned to the corkboard in her office. It depicts a small corrugated metal shack on the side of the road with a smiling Joyce standing beside her inventory: some two-by-fours, loose nails, eggs, and tomatoes.
After operating this stand for a few months, she heard about a microfinance institution called Kenya Women’s Microfinance Bank a few miles from her home and applied for a loan at the branch. The bank gave her a $70 loan and some training in bookkeeping and budgeting, which she parlayed into a booming hardware business that, seven years on, sells a full range of home improvement tools and housewares. Joyce is still a client of Kenya Women’s and maintains a $3,000 unsecured revolving line of credit with the bank. A few years ago, she went back to see the bank manager who had previously turned her down for a startup loan. They discussed her growth plans for the business at length, and he expressed enthusiasm about supporting her with a loan. But when he broached the subject of collateral—he estimated that the bank would need her to pledge property equivalent to about 130 percent of the value of the loan—she thanked him and left the branch as quickly as possible. The interest rate on her loan from Kenya Women’s was high at 35 percent, but neither she nor anyone in her family had the kind of collateral a bank loan would require as security.
Even though Joyce has a banking relationship with Kenya Women’s Microfinance Bank, she continues to participate in her community savings group because she enjoys the social interaction with her neighbors and the discipline of having to save a certain amount every month as a requirement of group membership. However, she also derives a sense of security from keeping most of her savings in an account at Kenya Women’s (she had previously thought that interest was only something you paid on a loan, not something you could earn on deposits). But the real game-changer in her financial life took place a few years after she began banking with a microfinance institution. M-Pesa, Africa’s first mobile money transfer service, burst onto the scene, upending all her ideas about convenience, security, and the cost of doing business. M-Pesa made it possible to pay vendors or utility bills, deposit funds in her bank account, or receive money from her husband or her customers through the cell phone in her pocket. This was a far cry from having to take a bus to a bank in another town during her peak business hours, nervously carrying cash if she was making a deposit, and then waiting in line to transact her business.
As Joyce’s business has grown, she has employed twenty-five people, mostly women. She is especially proud of her newly hired twenty-sixth employee, her husband. He returned home to work with Joyce on expanding into a new side business, a lumberyard and construction company. Almost in the same breath that Joyce describes these outward, commercial signs of growth and prosperity, she begins to talk about the investments she has made in her family’s well-being. It’s clear that both represent measures of success. Most notably, she points with pride to the fact that all three of her children have completed secondary school and are weighing different options for continuing their education. In addition, she put her younger sister through graduate school.
Reading Joyce’s story here, neatly printed on the page, risks missing how extraordinary her success is. Joyce just wanted to be able to care for her family and, in the absence of gainful employment for herself or her husband, started a business; she became an entrepreneur out of necessity. She then sought the most basic financial services to support that effort, and while she was eventually able to cobble together different products that suited her needs, they were expensive and often inconvenient. Joyce effectively had two sets of objectives. The first was to provide for her family’s security with food, clothing, and housing. Her second set of goals was more aspirational: to provide a better life for the next generation by educating her children and to build a thriving business in her community. The right financial tools can make both sets of goals attainable, but at present, they are out of reach for nearly a billion other women around the world. Ensuring that women have access to the financial resources they need to achieve both security and prosperity is the motivating force behind women’s financial inclusion.
Every man and woman, no matter how poor, needs the means to make and receive payments, as well as a safe place to store funds. The need to accumulate money remains a constant throughout life: in the short term to conduct daily transactions; in the intermediate term to provide a safety net in the case of emergencies or to save up for a large purchase, and in the long term to build a nest egg for old age. Not having a lot of money doesn’t eliminate the need to be able to save for these essentials. For centuries, communities of low-income people have come together to help each other secure the tools to do so. As the universality of this need for financial tools became better understood, people and organizations from outside the community emerged to provide them—motivated sometimes by greed, sometimes by good intentions, and sometimes by a combination of the two. The broader economic impact of expanding access to financial services also became apparent as poor people increasingly gained the means to improve their own lives. But human nature being what it is, any system with the power to change lives runs the risk of favoring some more than others. And when it comes to financial services, women are seldom among the favored.
Closing the gender gap in financial services would be the right thing to do as a matter of equity alone. While 72 percent of men have a financial account, only 65 percent of women do, and that difference has not budged in the decade that financial inclusion data have been collected. But ensuring women’s independent access to finance is important for other, perhaps even more profound reasons of human development. If a woman has her own bank account and access to other financial services in her own name, there is a greater likelihood that she will have a say in how money in her household is spent. What’s more, there is ample evidence that she will spend that money in ways that contribute directly to the well-being of her family. Numerous academic studies ranging across geographies repeat the same finding: when money in the household is controlled by women, more of the family members are healthier and eat more nutritious diets and children are better educated than when financial resources are controlled by men. This finding is at the crux of the argument in favor of women’s financial inclusion: improving women’s access to financial services not only improves individual outcomes, it improves outcomes for families and wider communities as well.
The aim of this book is to make unequivocally clear why women’s financial inclusion is good for women, good for business, and good for the resilience of the global economy. Part I of the book provides the necessary context for understanding the challenges and opportunities associated with women’s financial inclusion. Chapter 1 lays out the current state of women’s financial inclusion and briefly surveys the ways in which low-income people have addressed their financial needs through history and how these strategies have or have not worked for the benefit of women. Chapter 2 explores the principal barriers to women’s full participation in the financial system, ranging from the systemic level, such as lack of identification documents, to the personal, such as the effect of gender norms on women’s access to technology. Women’s financial inclusion consistently shows up on any list of enablers of women’s economic empowerment, but what does it really mean for a woman to be empowered, and how is empowerment measured? Chapter 3 reviews the academic literature on empowerment and how empowerment has been defined to determine whether (and how) gaining access to financial services and the skills to use them might result in a woman’s empowerment.
Part II of the book presents the business case for financial service providers to embrace low-income women as a rewarding client base, and what policymakers can do to facilitate the growth of this market. By any standard, the untapped commercial opportunity afforded by extending financial services to unbanked and underserved women in the developing world is compelling: more than $2 trillion in new deposits flowing into the financial system; $1.7 trillion in loans to capital-starved, women-led micro, small, and medium-sized businesses; up to $50 billion in insurance premium income annually. Chapters 4, 5, and 6 present examples of financial service providers that have successfully offered profitable savings, credit, and insurance products to low-income women. The nearly one billion unbanked women, and the millions more who are underserved, lacking full access to all the financial services they need (and deserve) to build wealth, manage risks, and grow their businesses, represent a formidable untapped market opportunity.
Digital technology has smashed many of the barriers that financial service providers previously encountered in serving low-income clients. Digital financial services offered through mobile phones rather than expensive brick-and-mortar banks can serve individuals and small businesses at dramatically lower cost, eliminating the burden and expense of transacting in cash. Biometric screening and other technologies have also changed the landscape of identification and documentation, just as many regulators have relaxed “know-your-customer” requirements and their associated costs to encourage banks to extend their reach to the unbanked and underbanked. Today, various providers have developed financial products—particularly those with built-in savings features—that are well suited to many women’s preferences for frequent, low-volume transactions. Other factors, though, are equally important to winning women’s business. Gaining their trust is at the top of the list.
In the last decade, developing countries have adopted a range of policy measures to encourage growth, including important financial sector reforms designed to reduce the cost of capital and spur investment. But if those reforms are not accompanied by policies to expand financial access, only wealthier individuals and firms will be able to take advantage of them. Without embracing financial inclusion, the reform may indeed boost growth, but it will also increase inequality. In fact, recent IMF research goes even further to say that beyond the level of financial inclusion in a country, it is the distribution of that access, specifically as reflected in the gap between men’s and women’s financial inclusion, that makes the real difference in addressing income inequality. The fundamental findings of this research bear repeating: a nation’s highest possible level of growth and the most equal distribution of the benefits of that growth are not attainable without addressing the disparity between men’s and women’s access to finance.
The COVID-19 pandemic has made the linkage between financial inclusion and macroeconomic growth more relevant and more urgent than ever before. As a result of the pandemic, an estimated 96 million people are expected to be pushed into extreme poverty, and it’s not just low-income countries that are facing greater economic fragility. Middle-income countries, where some of the greatest growth gains have been achieved in the last decade, are seeing their progress against poverty erased. In many countries, the contraction in the economy is directly tied to declines in women’s labor force participation. Around the world, women are shouldering additional unpaid care burdens during the pandemic and have lost jobs at a disproportionate rate: while women represent only 39 percent of global employment, they have suffered 54 percent of global job losses. The World Bank projects that the pandemic will leave lasting scars on the world economy and urges developing countries, in particular, to foster “growth-friendly” economic environments. As governments shift from providing relief from the pandemic to supporting economic growth, it is essential that they include investments in economic gender equality on any list of growth-oriented policy options.
Closing the gender gap in women’s financial inclusion would be an essential pillar in realizing the potential for women to assist in rebuilding the global economy. McKinsey notes that digital and financial inclusion, particularly access to credit and mobile banking services, are closely related to women’s labor force participation.
There has always been a range of persuasive arguments in favor of providing low-income women with the full suite of financial services. Perhaps the longest-standing claim is the simplest and the hardest to refute: when a woman controls the money in a household, more of the family benefits from the choices she makes. The second argument—that women are loyal, profitable customers for financial service providers—has been immeasurably strengthened in recent years with the advent of digital financial services. Financial service providers can no longer hide behind the defense that serving low-income women is too expensive and does not represent a viable business proposition. Banks and other legacy players are leaving money on the table for fintech companies and mobile money providers to scoop up.
The COVID-19 pandemic showed us that we can react fast and implement changes that would otherwise have taken decades. Millions of bank accounts were established for previously unbanked people so that they could receive government social protection payments. To do this, innovative remote account opening processes were used on a large scale for the first time. While lawmakers remained prudent, they nevertheless allowed previously sacrosanct regulatory barriers to fall. The crisis refocused policymakers’ priorities and showed that broad-based inclusion is possible. If the world builds on this momentum, the promise of women’s financial inclusion—the outsized commercial opportunity, the resilient economic growth, and the empowerment of women—is within our grasp.