At its core, economic development seeks to eliminate poverty. Significant progress has been made in this area: the number of people living in extreme poverty has dropped from 1.9 billion in 1990 to an estimated 615 million today. This remarkable shift is largely attributed to rapid economic growth in Asia’s most populous countries.
However, the final stretch toward eradicating poverty remains a challenge. With the fastest population growth occurring in regions where poverty remains entrenched, and the forces of globalization losing their momentum, growth alone may not suffice. Poverty alleviation must go beyond just income generation—it must offer access to opportunity and economic participation. To achieve this, alternative strategies, particularly in the realm of financial inclusion, must be prioritized.
Financial inclusion is key, as poverty is not solely defined by how much a person earns but by what their earnings can afford. Lowering the costs of goods and services, and improving accessibility for those with limited means, can have a direct impact on reducing poverty.
While governments in developed nations often provide a safety net of basic services, such support is far less common in the Global South. There, even basic goods and services can be prohibitively expensive for the poor. Additionally, reaching this demographic is more costly for businesses, as they often purchase in small quantities, further raising the price of service delivery.
Financial institutions have made strides in overcoming these challenges. By lowering service costs and expanding access, they have demonstrated that financial inclusion can spur broader development. To assess the potential impact of financial inclusion, World Data Lab, in partnership with the Mastercard Center for Inclusive Growth, combined consumption models with the World Bank’s Findex database.
The progress of the past decade underscores the potential for financial inclusion when innovation, investment, and collaboration are aligned. As we near the final phase of the global poverty battle, the focus must shift to integrating the most marginalized communities into the financial system.
Research indicates that financial inclusion benefits the poor disproportionately, especially when it comes to mobile money and digital payment systems. Our study examined the world’s six billion adults—those aged 15 and older—splitting them into six consumption-based categories of one billion each.
Historically, the poorest billion people, spending less than US$5 per day, were excluded from financial services, relying solely on cash transactions. However, a quiet revolution in mobile money and digital payments, especially in India and Africa, has brought financial services to over one-third of this group.
These advancements are driven by two key factors: the income-growth effect, which sees more people crossing income thresholds that make them eligible for financial services, and the price effect, which has reduced the cost of providing services to the unbanked.
In 2015, around 3.4 billion people had access to financial services. At that time, the entry threshold for accessing financial systems stood at approximately US$8 per day, leaving 2 billion people, or nearly 40% of the global adult population, without financial access. However, in the last decade, economic growth has expanded the global middle class, and technological innovations, including mobile money and digital banking, have lowered the cost of service delivery.
These combined factors have led to an additional 1.4 billion people gaining access to financial services since 2015—800 million due to income growth and 600 million from the price effect. The average global threshold for accessing financial services has now dropped to US$5 per day.
This reduced barrier, driven by the rise of digital money systems, has significantly expanded financial inclusion, particularly among the poor. In some of the best-performing countries, especially in Africa, financial services are now accessible at a price point as low as US$2 per day, just below the extreme poverty line of US$2.15 per day.
The strides made over the past decade prove that financial inclusion is achievable with the right mix of innovation, investment, and collaboration. Now, as we approach the final stages in the fight against poverty, the focus must be on extending access to financial services to the most marginalized communities.
Related topics:
- India Surpasses China in Gold Purchases, Buying 51% More in Three Months
- Qilu Bank Enhances Support for Small Businesses with Innovative Financial Tools
- Bitcoin Poised for a Surge Amid Gold’s Delivery Delays, Expert Claims
