IMF shows support for the positive impacts of financial inclusion of women

by 16th Nov 2015
A member of the Village Savings and Loan Association in Kawete, Uganda, carrying the savings box A member of the Village Savings and Loan Association in Kawete, Uganda, carrying the savings box

While CARE has long believed that giving women access to savings, both informally and in the formal financial sector, is a key way to empower women economically, it is always good to have such an august institution as the IMF provide support. In fact a recent IMF ‘Staff Paper’ – ie published by the IMF but not officially its policy – goes further to also highlight a positive impact on national growth.

The IMF Paper, Financial inclusion: Can it meet multiple macroeconomic goals? (published September 2015), starts from the point that not much is known about the macroeconomic implications of financial inclusion, but there is evidence that a household’s access to finance has a strong positive relationship with growth. This includes the view that access to basic payments and savings for poor households shows benefits, and more so than access to microcredit. There is also mounting evidence that financially empowered women are more likely to improve the family’s welfare, and excluding women limits growth and may also lower financial stability.

The paper looks at a range of previous studies which highlight that economic sectors which rely on ‘external’ financing (ie finance not generated from within the enterprise, but invested or loaned by others) grow better where there is higher financial inclusion. This is particularly true in sectors where pledging collateral is more difficult. (Sadly, it is not easy to detect from the paper which sectors those are.)

Beyond supporting growth, financial inclusion can also enhance financial stability at the macro level: there is evidence that an increase in access to deposits can reduce the likelihood of a large average withdrawal rate in times of stress. This chimes with some McKinsey research we recently highlighted on how banks growing their deposit base leads investors to value them more highly: “aggregating relatively small savings from a large number of customers smooths out the peaks and troughs, or at least shapes them into highly predictable phasing such as a peak at the end of the month when incomes are paid in.” So a bank can become a safer bet.

CARE has believed for some time that bringing the savings of the poor into the formal sector should be a big plus for the formal economy: our research has shown that members of our Village Savings and Loan Associations save on average $58 per annum. Given that more than 10 million people are members of savings groups in sub-Saharan Africa, that is a lot of cash that can be utilised by the formal sector. And when we go to the global level, the 2 billion currently unbanked obviously constitute an enormous potential pool of resources.

CARE plans to continue to ramp up our efforts to close the gender gap in access to formal finance by supporting women to form VSLAs and to then support those VSLAs to open accounts with formal financial institutions and deposit their savings there. So it’s good to see a financial heavyweight not always noted as a friend of the poor, come out in favour of the importance and value of financial inclusion and in particular on the role of women.

This blog was co-authored by Christian Pennotti, who is the Senior Technical Adviser on the LINK UP financial inclusion programme.

Gerry Boyle

I lead CARE International UK’s policy analysis and advocacy around value chains and dignified work. I originally joined CARE as the Senior Policy Adviser on Private Sector Engagement. With the advent of our new Global Programme Strategy which put a particular emphasis on women’s economic empowerment, my focus changed a little, although I still work extensively with issues in the private sector and with CARE’s corporate partners.

Until recently I spent a lot of my time on financial inclusion, now looked after by my colleague Fiona Jarden. I also co-chair the Bond Private Sector Working Group.  Immediately before I joined CARE I worked for Oxfam as Head of Business Relations for about three years, but the vast majority of my career was spent as a management consultant including being a consulting Partner at Deloitte, where for a time I led Deloitte UK’s Consumer Business consulting practice, serving many major multinationals. My original degree was in Law from Oxford University, and in 2008 when I left Deloitte I did an MSc in Philosophy and Public Policy at LSE.

One good thing I've read

Amartya Sen’s Development as Freedom. It provides a framework for many people’s modern understanding of what is development, based on a profoundly human-centred approach rather than anything instrumental. And to check whether one personally is doing enough to fight poverty, I recommend Peter Singer’s The life you can save: Acting now to end world poverty – it’s very clear and easy to read but very challenging! Finally, Ha-Joon Chang’s Bad Samaritans: Rich nations, poor policies, and the threat to the developing world is a very readable guide to economic development which argues strongly against many of the prevailing orthodoxies.


Twitter: @gerryboyle10