World Bank Group Headquarters How can financial inclusion help women and the poor? Leora Klapper Discussion: Sole Martinez Peria Macro Financial Division Research Department IMF Prepared for the World Bank Conference ”Finance and Development: The Unfinished Agenda” November 2, 2016 World Bank Group Headquarters

What do we learn? Latest numbers on inclusion… Around the world By gender By income strata Some low hanging fruits to increase inclusion E.g., payment of government wages and transfers into accounts Nice summary of the empirical evidence on the impact of inclusion and, in particular, of digital payments Reminder that there is a lot we do not know yet

Open questions Is financial inclusion macro-relevant? Which aspect of inclusion matters most? Does financial inclusion impact the effectiveness of government policies? Is there a dark side to financial inclusion? What are the barriers to inclusion? What policies promote financial inclusion? What are the preconditions for "safe" inclusion?

Is financial inclusion macro-relevant? Most of the existing evidence is at the micro-level. There are concerns about external validity and non-measured general equilibrium effects. Sahay et al (2015) is an exception but data is limited and identification is questionable. More research is needed: To measure the impact of inclusion on growth and income inequality at the macro level. To identify the mechanisms by which financial inclusion can have macro economic effects and affect growth and income inequality. Data and proper identification are significant limitations here.

Which aspects of financial inclusion matter most? Episodes such as the US sub-prime crisis and the microfinance crisis in India have raised concerns about the wisdom of promoting access to credit by the poor. Hence, financial inclusion efforts have tilted significantly towards promoting account ownership. Is this the right focus? Can we be sure that promoting account ownership yields better long-run outcomes regarding growth and income inequality relative to access to credit or to insurance?

Does inclusion affect other government policies? Is the effectiveness of monetary policy affected by the extent of financial inclusion? How does inclusion affect fiscal policy? Does it reduce tax evasion? Can fiscal multipliers be influenced by financial inclusion?

Is there a dark side to financial inclusion? Which aspects of financial inclusion can have a negative impact on financial stability and under what circumstances? Credit to low income individuals? Growth of accounts without appropriate safeguards against money laundering? Fast pace growth of accounts with poorly regulated institutions that cannot safely intermediate funds?

What are the main barriers to inclusion? Some “demand side” evidence exists on the importance of eligibility, distance, and trust. Need better supply side data on: Documentation and other eligibility requirements Fees and other costs Available forms of delivery of services

What policies best promote financial inclusion? Limited evidence available. Allen et al. (2016) Many countries are pursuing financial inclusion strategies. What do we know about the effectiveness of the policies being implemented? Is there a preferred set of measures? Is there a recommended sequencing?

What are the preconditions for "safe" inclusion? How important is the regulatory environment? What regulations make sense and which ones don’t? How important is consumer protection? Who is best positioned to do this? How critical is financial literacy? What concepts should be emphasized and through which delivery channels?

In sum… WB efforts and in particular Leora’s work on inclusion has been vital in advancing our understanding of the subject. Findex data have been key to mapping financial inclusion around the world. Yet, there are still many open questions and room for further research.