Financial Inclusion

Financial services include credit, savings, insurance, payment mechanisms, and transaction accounts. Services such as these make it possible to move resources across time and space — from good years to bad, from locations with normal conditions to others suffering from natural disasters. Financial inclusion allows for broad-based participation of poor and marginalized groups in processes that facilitate transfers of funds between individuals, groups, and financial institutions. Removing barriers to accessing financial tools helps smooth consumption in the face of unexpected setbacks. Informal financial systems also play an important role, especially in the immediate aftermath of a crisis.

Approach

Digital payments expand the social network able to send money in times of crisis. They also increase the efficiency and targeting of cash transfer programs. Removing cost and behavioral barriers to savings accounts enables households to limit reductions in consumption during crises. Insurance is often in low demand among poor households. However, it can potentially help households better manage food security and income shocks.

Evidence

Interventions addressing financial market failures — e.g., through insurance or credit/grants — increase resilience for poor individuals. Studies suggest index-based livestock insurance can build household resilience among herders. Combining technical training with asset transfers may also build household resilience. Research suggests informal financial systems are more important than formal finance in immediate aftermath of disaster.