Closing Remarks -- Inclusive Finance: A Path to the MDGs

Maria Otero
Under Secretary for Democracy and Global Affairs 
New York City
September 22, 2010

Thank you to our panelists, Betty Mwangi, Roshaneh Zafar, Mexican Under Secretary Max Henderson, to my friend Princess Maxima for her insights, to our moderator David Morrison, and last but certainly not least to the Prime Minister of the Netherlands, without whom this event would not have been possible. It was a great pleasure to be joined by Secretary Clinton, President Lobo, Foreign Minister Hernandez and the Honduran and Salvadoran delegations. I also want to recognize the Prince of Orange, and my colleagues from the U.S. Government. And of course, all of our experts and distinguished guests in the audience.

This is an important event for me, having spent the majority of my career working in microfinance, and now at the State Department where I am fortunate to work with Secretary Clinton who cares very much about this issue. Indeed, our conversation today has been indicative of how important this issue is to all of us—to the future of our countries, our communities, and future generations.

We have heard how Safaricom, a for-profit telecommunications company, is innovating around the needs of low-income Kenyans. Theirs is a story of recognizing a need and developing not just a practical solution but a profitable one. We also heard how the Kashf Foundation has sowed success in Pakistan, empowering small business owners to provide for their families and communities despite trying circumstances.

The Millennium Development Goals challenge us to create sustainable resolutions to entrenched challenges. They call for expansive, inclusive thinking—thinking that breaks down our traditional notions of development policies and growth strategies.

As we seek to foster economic growth at the local, national and regional levels, we must ensure that our policies themselves are inclusive of all sectors of society. This means building banking systems that serve not only the traditionally bankable but also those who have been relegated to the fringe of economic opportunity—including women, small farmers and rural communities, people with disabilities, indigenous peoples, and ethnic minorities.

Financial inclusion is not just about microfinance institutions or even the micro loans that they provide, though both are important developments of the last four decades. We must extend the groundbreaking thinking that gave rise to microfinance—the idea that the poor are credit worthy and reliable—and apply it to how we craft economic and social policy. We must take the creative thinking that has fueled Safaricom and Kashf’s success and funnel it into how we understand banking. What we are talking about now is shifting systems so that they work for the poor and underserved and building the economy at the same time.

As we have heard today, financial inclusion is also not just a development issue or a financial issue. And it doesn’t only benefit poor customers, but service providers and the government as well. By bringing more people into the formal financial system, we can create more transparency and accountability in otherwise shrouded sectors of the economy. We can expand the tax base and help incentivize efficiency in financial transactions. And we can create more stability and continuity in fragile communities because people will be equipped to make better financial decisions.

Financial inclusion is more than a fancy term or slogan. It requires sustained, consistent effort on the part of all of our governments. And I can tell you from the experience of my country: the work of giving communities access to economic opportunity through financial services is never finished.

In the United States, where access to credit is readily available, large numbers of people, especially young people and immigrants, still struggle to meet bank requirements for small business loans. On the other end of the spectrum, they may be sold products that do not fit their needs or financial capacity. Clearly, we have to look no further than the Financial Crisis of the last two years to understand the importance of tailoring financial products to the needs of low-income individuals and families. So financial inclusion is not just about access but also about quality.

While nonprofits and companies continue to innovate around new products and approaches to expanding and improving financial access, we should not discount the role of government in creating enabling environments that allow for this work. We must ensure that policies and regulations allow for this new era, this next step in inclusive banking.

Take for example, the fact that over a billion people worldwide have cell phones but no bank account. Government can encourage and incentive partnerships across sectors, such as mobile operators and banks, to close this gap between the unbanked and mobile users. USAID recently launched a challenge fund with the Gates Foundation to do spur mobile banking partnerships in Haiti.

We can also increase efficiency in government programs by connecting cash transfer programs with microfinance institutions, so that the poorest of society are better educated in how to manage their money. Imagine how much progress we would make it every recipient of a government payment also received training in how best to use his or her money. The Government of Mexico is advancing this concept through their Oportunidades program.

And as we move up the ladder of economic activity, we can also support reforms like secured transactions, so that small businesses can use movable assets as collateral for business loans—thereby expanding their access to cheaper, more reliable capital.

Governments around the world are already advancing this work. The G20 Leaders have created of a Financial Inclusion Experts Working Group to promote the safe and sound spread of new modes of financial service delivery to reach the world’s poor and underserved. We look forward to their recommendations in November.

In Kenya, the Central Bank has adapted its regulations to allow for the safe, sustainable scaling up of the most successful mobile banking program in the world, giving 8 million low-income Kenyans the tools to make better financial decisions.

In Brazil, the government has opened the space for non-bank agents—like corner kiosks—to process financial transactions on behalf of regulated institutions, so that financial services are no longer confined to bricks and mortar branches in big cities.

In Central America, we are working with several countries to better leverage the millions of dollars sent via remittances every year, increasing the capital available for microfinance institutions and critical development services. All of these efforts contribute to financial inclusion.

The market vendor, the taxi driver, the smallholder farmer–these are all business people. But they operate in an environment of high costs and low accountability. By constructing a more inclusive financial system, we expand the circle of opportunity, allowing micro and small businesses to grow along with the larger economy. But it is incumbent on us to spur the innovation, reform the policies, and create the space for financial inclusion to become a reality.

With that, I thank you for coming, and for all that you do.