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Commentary August 15th, 2016

The financial gateway to greater wellbeing

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A bank or mobile money account enables the poorest to save and help manage their cash flow

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There is a strong and measurable connection between financial inclusion and well-being

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Financial inclusion is linked to many aspects of well-being that have little to do with income

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Let's face it: banks have hardly been flavour of the month in recent years. Their role in the financial crisis did not just dent their balance sheets but also their reputation in the arena of public opinion. And yet for those of us in the developed world, banks - and bankers - remain crucial to a well-functioning society because they provide services that underpin everyday life in all kinds of ways.

After all, having a bank account is something that is almost taken for granted - much like electricity or a mobile phone. It's through a bank account that we get paid. It's how we pay our mortgage or rent, our utility bills, taxes and so on. But for many in the developing world, such a scenario remains way out of reach. The World Bank has found that about 2 billion people don't use formal financial services. Clearly, the scope to do better remains huge.

This year's Sustainable Economic Development Assessment (SEDA) from The Boston Consulting Group takes a close look at the issue of financial inclusion and how it can drive improved citizen well-being. What did we discover?

SEDA says…

GDP, while still important, doesn't give a full picture of a country's performance - which is where SEDA comes in. A diagnostic tool, it helps provide government leaders with a perspective on how effectively their countries convert wealth, as measured by income levels, into well-being. The public sector has increasingly pivoted towards using well-being as a means to enhance living standards for all, but this does not mean that there is no role for the private sector to contribute to both economic growth and well-being.

In some ways this is surprising. After all, corporate social responsibility (CSR) has been a mainstay of businesses large and small for many years. However, their support for social and environmental causes - while admirable - only hints at what can be done. Companies can also innovate within their current business models in a way that not only enhances shareholder value but also helps address important societal challenges - with the financial services industry being a key case in point.

There are all manner of financial instruments on offer in today's marketplace. But forget bonds, stocks and derivatives, the basic financial service that we all depend on is a bank account and, increasingly, mobile money, as some of the new accounts are not with banks. In developing countries in particular, the absence of a bank account can have severe repercussions. Into this void come unregulated ways of accessing loans and savings, often at high rates of interest. By contrast, studies have shown that a bank or mobile money account enables the poorest to save money, help manage their cash flow, weather challenges such as unforeseen health issues, and make transfers cheaply - crucial given the past difficulty of sending money from cities to rural areas, for instance.

The good news is that there have been some positive developments in recent years, Between 2011 and 2014, the number of people with access to a financial account rose more than 25%, from 2.5 billion (51% of the world's adult population) to 3.2 billion (62%), according to the World Bank. But as financial inclusion expands, what does this mean for well being?

A gap bridged

SEDA tells us that there is a strong and measurable connection between financial inclusion and well-being. This is because wealthier countries have more resources to invest in areas that support well-being. And given that financial inclusion tends to be higher in wealthier countries, it follows that countries with more financial inclusion would also have higher levels of well-being.

But even among countries with the same income levels, those with higher levels of financial inclusion are likely to have higher levels of well-being. We found that financial inclusion accounts for an additional 11 percentage points in well-being among countries - beyond what can be explained by differences in income levels. This is because financial inclusion is linked to many aspects of well-being that have little to do with income. Take infrastructure, for example. Reliable electricity, access to the internet and well-developed mobile phone networks are all key tools for expanding access to financial services in many emerging economies.

Picking up the pace

Unleashing the full power of power of financial services to boost well-being requires more than just a solid infrastructure, however. Policymakers need to deliver a sound and flexible regulatory structure which promotes competition and sets the stage for private sector innovation, while safeguarding consumers and the integrity of the financial system. Of course, this is easier said than done. But the impact we seek demands the best and brightest from sectors both private and public to step up to the plate. The jigsaw will only be complete when both sides are fully engaged and operating to their full potential. It can be done - enabling the private sector to rapidly expand financial inclusion in some quarters: in 2015, $22 billion was invested in privately held financial technology startups, up from just $4 billion in 2011.

To ensure that such progress is mirrored elsewhere, business leaders now need to ask themselves how their core business model can create social value, and how integrated are their CSR and government relations efforts with that model. Their answer to these two questions will shape how their companies can create social benefits that contribute to the well-being of people around the world and boost their shareholder value in the process.

Now that's not a bad day's work…



  • Why well-being works. With global growth continuing to fluctuate, governments are looking at other ways to track and strengthen social and economic performance. Michael Spence explains why policymakers are increasingly agreeing on wellbeing
  • From growing pains to growing gains. While governments and businesses are united by their mutual hunt for prosperity and wellbeing, how to achieve it remains an enduring challenge. Douglas Beal and Enrique Rueda-Sabater examine the available options
  • Unleashing some Nigerian know-how. Luis Gravito and Wiebe Boer suggests how Nigeria can take the next steps towards future prosperity and well-being

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