What is inclusive finance and what does the G20 have to do with it?

The G20 has an ambitious agenda for inclusive finance. As G20 President, China has also included inclusive finance among the priorities for its term. The GPFI, Global Partnership for Financial Inclusion, is calling for modernisation and digitalisation of the inclusive finance agenda. To what extent China and the G20 members will actually take up inclusive finance as a national priority remains to be seen.  

The G20 has a special workstream on inclusive finance in cooperation with the Global Partnership for Financial Inclusion. The goal of inclusive finance is to achieve universal access to financial instruments such as saving accounts, (microfinance) loans and insurance policies. These services are often not available to poor households and in remote areas. Improving access to financial services can help small businesses grow and safeguard them from risks (through health insurance). The World Bank Global Financial Inclusion (Global Findex) Database (opens in new window) nindicates that 2.5 billion adults globally—about half the total adult population—have no access to financial services delivered by regulated financial institutions. Only 41% of the people in developing countries(opens in new window) have an account at a formal financial institution.

This is why the G20 Leaders have committed themselves to inclusive finance. Back in 2009, the G20 included access to financial services for the poor in its agenda as a means of improving financial stability and consumer protection. After agreeing to an Action Plan, the G20 officially launched the Global Partnership for Financial Inclusion (GPFI) at the 2010 Summit in Seoul, to coordinate the implementation of the action plan. Ban-Ki Moon’s Special Advocate for Inclusive Finance for Development(opens in new window) , Her Majesty Queen Máxima of the Netherlands, was appointed as Honorary Patron of the GPFI in 2011, as a way to involve the UN.

So what are China’s plans?

Financial inclusion has been made one of five priorities for China’s G20 Presidency in 2016. China has announced “Toward an Innovative, Invigorated, Interconnected and Inclusive World Economy” as the attractively alliterating theme for the 2016 G20 Summit set for early September. As China’s President, Xi Jinping, put it, “we should (…) ensure that the benefits of economic growth will be equitably shared by people of all countries.” Ambitious to be sure, but what exactly is China’s agenda during its Presidency when it comes to inclusive finance?

Among the list of ten results that China has tasked itself(opens in new window) with achieving at its G20 Summit, inclusive finance is nowhere to be found. While inclusive finance might not be a top priority for the G20 Chair, the GPFI held several G20 workshops in the run-up to the Summit in which the G20 agenda on inclusive finance was discussed. These were recently held from the 18 to 19 of July, followed by the GPFI Plenary on 20 July. Reports of these meetings were not yet available at the time of writing.

The GPFI has a very ambitious agenda and has identified five priorities for China’s G20 Presidency(opens in new window) . However, to what extent China is genuinely committed to realising the GPFI’s ambitions is not clear. In economically uncertain times, China is pushing its domestic agenda through the G20 Strong, Sustainable and Balanced Growth Framework Working Group meeting.

1. Digital financial inclusion: Innovation, Supervision and RegulationA key change since the inauguration of the GPFI has been the rapid digitalisation of society as a whole, and the financial services sector specifically. Digitalisation has great potential to improve financial inclusion, be it through mobile payments, online banking or crowdfunding. GPFI has therefore set digital financial inclusion as one of its key priorities. It wants to improve cooperation between the private and public sectors, and explore good practices and regulatory frameworks on digital financial inclusion in various countries. It wants to then develop policy principles that it hopes will be endorsed by the G20 at this year’s Summit so that members can implement these at country-level.
2. Data and indicators
   Reliable data and appropriate indicators are key to measuring financial inclusion and developing adequate policy. The GPFI has identified several challenges, for instance the need to develop digital financial inclusion indicators. After updating the indicator set, the GPFI wants to develop a data collection framework that needs to work across and within countries.
3. Reaching the last mile: rural areas, the poor, the youth and the elderly
   In rural areas, there is often a lack of infrastructure (from telecommunications to roads), that hindering financial inclusion. The GPFI will facilitate dialogue on effective approaches to improve the digitalisation of social transfer programmes, efficient use of subsidies and financial education. The GPFI will also actively encourage low-income developing countries to participate in GPFI meetings and events.
4. Financial consumer protection and financial literacy
   The GPFI will also promote good practices for financial consumer protection and financial literacy, with particular attention given to digital financial services.
5. SME Finance: diversified financing channels
   With the key role played by SMEs in economic growth, SME access to finance is of great concern to the GPFI. For instance, the GPFI will focus on making longer-term finance available to SMEs by using capital market instruments.

The involvement of regulators in digitalised inclusive finance

Interestingly, the GPFI has successful involved many international bodies of supervisors and regulators(opens in new window) to take account of the need for inclusive finance (see also the 2011 GPFI White Paper(opens in new window) ). In March 2016 , the GPFI raised awareness about the rapid digitalisation of society, also in lower-income countries, as well as its potential for inclusive finance among regulators in its March 2016 GPFI White Paper, Global Standard-Setting Bodies and Financial Inclusion: The Evolving Landscape [http://www.gpfi.org/news/gpfi-approves-2016-gpfi-white-paper-global-standard-setting-bodies-and-financial-inclusion-evolving]. This will be further discussed at the third GPFI Standard-Setting Bodies Conference on 26-27 October 2016. A follow-up to the supervisor’s consultation on guiding principles for financial inclusion might also be discussed (see the Guidance on the application of the core principles for effective banking supervision to the regulation and supervision of institutions relevant to financial inclusion(opens in new window) ).

Ultimately, it will be up to the G20 members to turn the GPFI’s ambitions into country-level policy. How this agenda will be taken up at the national level will need to be monitored.