Promoting Financial Inclusion at Scale: A Canadian Perspective

Ninety-nine percent of Canadians have an account at a formal financial institution, and 98% of adults belonging to the poorest 40% have an account. Yet, in Canada too, some Canadians are underserved by the formal financial system and face barriers in accessing and using financial products.

Canada has developed efforts to boost financial capabilities for all Canadians through Canada’s Financial Literacy Strategy. It mobilizes a wide cross-section of public, private and community level actors.

What can we learning from Canada´s experience, and how can these efforts inform efforts globally, where the scope and scale of the challenges are exponentially greater? How can Canada complement the global initiatives to boost financial inclusion at scale, and what can Canada learn from financial inclusion efforts already underway around the world?

In search of answers to these questions, Canada’s International Development Research Centre (IDRC) gathered 35 global experts, practitioners, academics in Ottawa, on May 6, 2016, for the Expert Roundtable: Expanding Financial Inclusion to Enhance Livelihoods to spur ideas on innovations able to foster financial inclusion at scale, particularly to reach vulnerable groups in developing countries. It was an opportunity to learn how various international organizations and networks, particularly the Alliance for Financial Inclusion (AFI), have promoted global learning to inform policy and practice, as well as to consider how Canadian experiences can be relevant to challenges developing nations face.

Canada’s experience

The roundtable was a unique opportunity to bring together a number of Canadian and international actors engaged in financial inclusion research and programs.

For the majority of Canadians, appropriate financial services are readily available and accessible. According to the World Bank Global Findex Data (2014), 99% of Canadians have an account at a formal financial institution. This compares well to high-income OECD countries where on average 94% of adults have an account at a formal financial institution. Canada also compares favorably in terms of reaching out to the most vulnerable: 98.4% of adults belonging to the poorest 40% of households have an account (versus 90.6 % in high-income OECD countries on average). In Canada 98.3% of those living in rural areas have an account at a formal financial institution.

Yet, as a Prosper Canada report cites, some Canadians seem to be underserved by the formal financial system and face barriers in accessing and using financial products, and in terms of financial capabilities. As part of the G20, Canada shares the values and aspiration of narrowing the gaps in financial inclusion. Canada has developed efforts to boost financial capabilities for all Canadians through Canada´s Financial Literacy Strategy.

A key part of the effort has been to engage a wide cross-section of public, private and community level actors. Canada appointed its first Financial Literacy Leader in 2014 to engage, collaborate and coordinate activities with stakeholders from the public, private and non-profit sectors, in order to support and contribute to initiatives that strengthen the financial literacy of Canadians. The federal government has worked with Canadian provinces to mainstream financial education in the school curricula.

The federal government addresses a series of challenges to enhance financial inclusion and literacy among aboriginal people, including: geographic, technological, socio-economic and behavioural (lack trust and confidence in the system). Introduction of new cellular phone applications as an innovative tool for financial literacy of vulnerable and remote aboriginal communities is proving promising. Aresearch paper prepared for the Task Force on Financial Literacy reviewed the experience of aboriginal financial institutions that have integrated financial literacy training in their business models.  Efforts in Canada to enhance financial literacy for aboriginal people can be relevant to other countries, and Canada can also learn for experiences elsewhere.

Internationally also, Canadian governmental and non-governmental development agencies together with financial institutions have contributed to fostering greater financial inclusion, especially for disadvantaged women. The roundtable benefitted from the insights and experiences shared by the Alliance for Financial Inclusion, as well as Global Affairs Canada, MasterCard Foundation, Mennonite Economic Development Associates, Canadian Cooperative Association and FINCA Canada.

What we are learning from various ongoing initiatives

Panelist and participants shared their insights from research and program initiatives from across the globe. Some highlights include:

• Grassroots and country-level efforts must be complemented by global knowledge exchange and support for policy research and policy development as seen in the initiatives led by Alliance for Financial Inclusion. AFI’s recent initiatives include development of an Action Plan for Gender and Women’s Financial Inclusion, which is expected to be adopted by its members in September 2016.
• Experiences from Latin America show that, beyond reducing poverty, financial inclusion can be an effective tool to mainstream those in the informal sector, facilitate social mobility, empower the poor and reduce inequality. Panelists underscored that financial inclusion is not an end in and of itself, rather, a ‘means’ to an ‘end’.
• Insights from Latin America and Africa demonstrate that appropriate and differentiated financial inclusion products and services help the poor, especially women, to manage ‘risks’ and ‘stress’ and potentially open up new economic opportunities;
• Panelists noted that while important efforts have been made to facilitate access to saving instruments for poor people, many accounts remain dormant. It is critical to understand the underlying factors and to link ‘accessibility’ with productive and diverse ‘use’ of financial services to ensure scarce resources are managed better (see financial diaries developed by Bankable Frontiers Associates);
• Gaps in rates of financial inclusion persist between men and women. However, targeted efforts aimed at specific demographic, social and occupation groups can be effective in augmenting inclusion rates (see MasterCard Foundation initiatives for financial inclusion of African youth);
• Linking social protection with financial inclusion can be an effective way to promote greater financial outreach. Incorporating financial education components in existing social programsreinforces proper and effective usage of financial services. It is also promising for governments as it supports social protection efforts to enhance livelihoods (see examples of Proyecto Capital’s work in Latin America);

Where can further research and programming focus?

In line with its strategic objectives of investing in solutions at scale, and building on its expanding partnerships, IDRC is seeking to broaden and deepen the discourses on enhancing financial inclusion, building on the momentum around ongoing global, regional and national level efforts and platforms to promote financial services for the poor. The roundtable helped crystallize some gaps and areas of further programming and research:

• Expanding the support platforms of peer-learning and coordination such as those coordinated by the Alliance for Financial Inclusion to help connect global efforts and translate their vision into reality;
• Capacity building and backstopping of national-regional regulatory and policy-making bodies to cope with emerging non-traditional financial service provision and changing market dynamics;
• Better understanding of the relationships between informal and formal financial services and its intersections with financial inclusion initiatives, and how these can foster economic citizenship;
• Understanding implications of financial exclusion for population segments with varying income levels and patterns, e.g. extreme poor or emerging middle-class;
• Promoting scalable innovations in digital financial services with safeguarding user privacy and data. Scaling up new models of financial inclusion with accessible technology, and above all, customer centricity (see example of Modelo Peru);
• Deepening understanding of women’s agency and potentials in using financial services and intersecting financial inclusion with specific groups (e.g. youth entrepreneurs);
• Sharing learning across countries and regions to establish broad principles and objectives of financial literacy, taking into account the diversity of approaches and contents tailored for population groups;
• Sensitizing and incentivizing financial institutions as a key part of the solution and a driver of scalable approaches in financial inclusion. Crafting ways to build trust and develop ‘business case’ for financial institutions.

The mother in Mexico working different small jobs to provide food for her family and prosper; or the young entrepreneur in Tanzania seeking to grow a small business; each of their experiences and challenges are unique, but they share a common need of financial services and tools to help them better manage limited resources, to make informed choices and to cope with volatilities. Through our collective efforts, we can enhance their agency, help them capitalize on new economic opportunities and foster economic citizenship.

ABOUT THE AUTHORS
Ahmed K. Rashid (ahmedkrashid@yahoo.com) has worked as a consultant for International Development Research Centre, Ottawa, Canada; Carolina Robino, PhD (crobino@idrc.ca), is Senior Program Officer, International Development Research Centre, based in IDRC Regional Office in Montevideo, Uruguay. 

ABOUT THE IDRC
The International Development Research Centre (IDRC) supports leading thinkers who advance knowledge and solve practical development problems. IDRC provides the resources, advice, and training needed to implement and share their solutions with those who need them most. IDRC has supported targeted research and policy innovations so that greater financial inclusion enhances poor people’s livelihoods and wellbeing. IDRC deems it critical to share and exchange ideas for solutions, and collaborate with important global, regional and local actors and partners, so that our collective efforts can be effectively scaled up.