Bankrolling financial inclusion

"Financial Inclusion" has remained the "it" phrase among multilaterals, donors and global philanthropist community for last few years. Since every four out of five Pakistanis remain unbanked, donors have shown particular interest in Pakistan, too, where they have been supporting providers of microfinance and branchless banking to financially mainstream the poor households.
The World Bank-based "Consultative Group for Access to the Poor" released an interesting brief report last week which helps understand the trends in public and private funding for advancing "financial inclusion". CGAP defines financial inclusion as provision of a broad range of financial services to households and businesses to increase their economic opportunities and reduce shock vulnerability.
The report estimated that funders committed at least $29 billion in 2012 to support financial inclusion, which was 12 percent more over previous year; thanks largely to improved economic environment. More than 70 percent of this was public funding, which increased 16 percent over previous year. However, private sector commitments grew by a modest 2 percent year on year.
Majority of these commitments were for debt financing, remotely followed by equity injections, grants and guarantees. Channels of funding were diverse, with 30 percent being routed through intermediaries (such as banks and apex bodies), 25 percent through national governments, while the remaining was provided directly to the retail Financial Service Providers (FSPs).
The regional comparison puts Eastern Europe and Central Asia and South Asia as the top recipients, followed by Sub-Saharan Africa, and Latin America and the Caribbean. Pakistan, India and Bangladesh are said to be among the top recipients in the region for financial inclusion.
Interestingly, the study dismisses "lack of funding" as the key barrier to financial inclusion. Instead, lack of suitable range of products and limited institutional capacity are cited as key hurdles. CGAP notes that donors are now helping address capacity issues like product design, operational management, governance structures and responsible practices.
The study showed that the funders are now trying to focus more on "making the management and governance of FSPs more effective and improving responsible practices of FSPs in the next three years". Pakistan (which CGAP has termed as an innovation lab for financial inclusion) is a good example in that respect where the regulator, the apex and the providers not only recognise the importance for capacity building and governance structures, but also have applied the same thinking in recent years.