Financial Inclusion

Interventions that increase access to financial tools like insurance, credit, and digital payment systems help strengthen resilience for the poor.

Image
women's saving group

Overview

Financial services, including credit, savings, insurance, payment mechanisms, and transaction accounts, make it possible to move resources across time and space: from good years to bad, and from locations with normal conditions to others suffering from natural disasters. Financial inclusion allows for broad-based participation of poor and marginalized groups in the financial processes that facilitate this transfer of funds between individuals, groups, and financial institutions. Removing barriers to accessing financial tools helps smooth consumption in the face of unexpected setbacks. Informal financial systems also play an important role, especially in the immediate aftermath of a crisis.

Source

Digital payments expand the social network able to send money in times of crisis and increase the efficiency and targeting of cash transfer programs. Removing cost and behavioral barriers to savings accounts enables households to limit reductions in consumption during a crisis. Insurance, although in low demand among poor households, can potentially help households better manage food security and income shocks.

Evidence

Interventions that address financial market failures—e.g., through insurance or credit/grants—increase resilience for the poor. Studies have shown that index-based livestock insurance can build household resilience among herders, as can combining technical training with asset transfers. Research has also shown that informal financial systems tend to be even more important than formal finance in the immediate aftermath of disaster, though investment in informal finance has yet to gain traction among policymakers.

More Resources