The Gates Foundation, as I reported in The Banker on 22 December, [1] plans to end support for financial inclusion in 2030.
That’s much earlier than the public “sunset” date of 2045 given by Bill Gates in May 2025 for winding down all foundation operations. [2] Initiatives that will be defunded from 2030 include the Consultative Group to Assist the Poor, an independent think-tank set up at the World Bank in Washington, and the Alliance for Financial Inclusion (AFI), based in Malaysia.
The Gates Foundation has been an anchor supporter of micro-lending and the expansion of access to basic banking services across the developing world. The AFI, set up with a Gates grant in 2008, launched the 2011 Maya Declaration, which stresses the “critical importance of financial inclusion” to transforming the lives of the poor.[3] By 2014, the AFI claimed its central bank and financial regulator members represented 85% of the world’s unbanked population.
The foundation justifies the defunding decision by arguing that the aim of much broader global access to financial services has been achieved.
So what does the financial inclusion balance sheet look like?
The response with the strongest base of evidence is provided by Maren Duvendack and Philip Mader in a paper published in 2019. [4] The research consists of a “review of reviews” of studies relating to financial inclusion impact.
The authors identified 32 such overall reviews dating from 2010 onwards, though only 11 were found to be rigorous enough to be included.
Duvendack and Mader found that the effects of financial services on economic poverty indicators, health and social outcomes were “small and inconsistent.” There was also no evidence for any positive changes in behaviour among people with new access to financial services.
The research found that savings products had “small but much more consistently positive effects” for poor people than debt. There were also signs of positive effects of financial services on women’s empowerment, but these were found to often result from programme features which were “peripheral or unrelated” to the financial service itself, such as education about rights.
Further Reading: India offers alternative to microfinance with MSME equity fund
Reviews that lacked proper methods, the authors found, were much more likely to report positive impacts. The more rigorous the review, the less likely it was to show positive results.
None of the reviews, whether included in the 2019 study or not, was able to provide in-depth analysis of indebtedness patterns resulting from financial inclusion. This, the authors wrote, is a “glaring omission” in research on the subject.
How did financial inclusion become so widely accepted as a policy aim despite the lack of a clear track record? The influence and spending power of the Gates Foundation were a major factor. Yet there seems no obvious reason to think that the lives of the very poor can be changed simply by making basic financial services available.
The core problem of the concept of financial inclusion was that it was a defensive one, conceived in response to the failings of micro-credit. Making small loans to the very poor as a method of tackling poverty took off in Bangladesh in the 1980s, pioneered by Nobel Peace Prize Winner Muhammad Yunus.
Early optimism as to the impact of small loans, however, soon became untenable, in light of overborrowing among poor people who found themselves trapped by their debts. A wave of suicides among micro-credit borrowers in the south-east Indian state of Andhra Pradesh in 2010 was a turning point.
‘Financial inclusion’ was not really an original idea so much as a repackaging of the concept of microfinance to give more weight to other basic financial services such as savings, insurance and payments. Yet high-interest loans remain a much faster way to make money than any of the others. So, despite the repacking, lending has remained the core focus of the institutions actually practising ‘financial inclusion.’
Further Reading: Ethiopian foray into fintech may end in tears
Financial services, of course, have moved on since the 2019 study, with mobile phones and fintech solutions becoming much more widespread, and AI available to deliver instant decisions on loan requests. The risks of digitally enabled instant access to high-interest loans for the very poor should be clear.
Wider access to financial services cannot be uninvented. The decision by the Gates Foundation to end financial inclusion support can be a positive moment if the policy debate now moves beyond the artificial parameters which the foundation set, and gives more space to other approaches. Locally developed alternatives to financial inclusion, some of which have histories longer than that of Western-style banking, need to get more attention.
The idea that the free market can deliver better outcomes for the poor simply by providing basic financial products should now be laid to rest. The state must come back into the picture.
Through their regulatory capacities, developing country states are the only actors with a realistic chance of limiting the harms of generalised micro-credit access. International organisations and donors can help by supporting the development of that regulatory capacity where it is insufficient.
[1] Gates Foundation to end financial inclusion support in 2030 – The Banker. Sign in for free trial needed.
[2] Gates Foundation Will Double Spending Over Next 20 Years to Accelerate Progress on Saving and Improving Lives
[3] Maya Declaration – Alliance for Financial Inclusion
[4] Impact of financial inclusion in low‐ and middle‐income countries: A systematic review of reviews – Duvendack – 2019 – Campbell Systematic Reviews – Wiley Online Library
https://drdavidwhitehouse.substack.com/p/the-rise-and-fall-of-financial-inclusion
