Making Financial Access Universal: The Gates Foundation, India Way

This interview was first published in PYXERA Global’s Global Engagement Forum on 5th June 2019

In 2013, two years prior to the adoption of the UN’s Sustainable Development Goals (SDGs), the World Bank launched its Universal Financial Access (UFA) program. UFA was a necessary precursor to the SDGs simply because, without inclusive finance and growth, the 17 Global Goals would remain lofty and unattainable.

Mirroring this development reality, the Bill & Melinda Gates Foundation took a strategic approach to empowering the poorest of the poor. Reducing wealth disparities begins by removing social, regulatory, and technological barriers to financial inclusion. Over the last several years, the Gates Foundation has made significant contributions to achieve this objective.

In this wide-ranging interview, Shakti Saran, Senior Fellow at PYXERA Global discusses with Dr. Pawan Bakhshi, India Country Lead, Financial Services for the Poor, Bill & Melinda Gates Foundation, about the Foundation’s strategy for and accomplishments in India.

Why is the provision of financial services for the poor important to the Bill & Melinda Gates Foundation?

The guiding principle of the Bill & Melinda Gates Foundation is that “all lives have equal value.” We believe a significant driver of inequality and poverty is financial exclusion. Over 1.5 billion people worldwide lack access to basic financial services, such as savings, payments, insurance, and credit.

Without formal financial transaction histories, they’re cut off from potentially stabilizing and uplifting opportunities like building credit or getting a loan to start a business. Buying insurance in cash is virtually impossible and saving in cash is full of risks. Financial exclusion makes it virtually impossible to break the shackles of poverty.

Most poor people live very active financial lives. Though they transact in small amounts, the number of transactions they make is quite large. They buy food; pay doctor’s bills and school fees; have multiple sources of income; and borrow and lend money through complex family and social networks.

To get by, the poor can be very creative about pooling together informal financial tools. But they mostly rely on cash and illiquid assets like jewelry and livestock—and on such uncertain intermediaries as couriers, off-the-books lenders, extended-family connections, and even organized-crime syndicates. As a result, they face constant risks, limitations, and hidden costs.

Needless to say, this can kick the ladder out from under anyone trying to escape poverty. That’s why the Bill & Melinda Gates Foundation has made financial inclusion a priority.

Our Financial Services for the Poor (FSP) program supports private-sector and government partners in a shared effort to give the world’s poorest people access to financial tools that they can use to build better, more prosperous, and more secure lives for themselves, their families, and their communities.

What are your focus areas for India and key accomplishments to date?

We are focused on supporting approaches that can provide financial services to the broadest number of people. These solutions must be very affordable for the poor so that few, if any, barriers stand in the way of their use. Because we are focused on scale and cost, we believe that digital technology is essential to reaching the goal of universal financial inclusion.

Digital technology can help reduce transaction costs to near zero and make it possible for businesses to reach far-flung populations in completely new ways. It can enable the poor to use, store, and manage their money more easily and safely. It can also equip governments to improve the efficiency and scope of social welfare programs.

We believe that providing poor people with reliable access to a range of safe, affordable financial tools and services can be one of the most powerful ways to help them build better, healthier lives. The Foundation’s Financial Services for the Poor program works to broaden the reach of low-cost digital financial services for the poor. Our strategy is aimed at supporting what we believe are the most catalytic approaches to financial inclusion, helping to drive the development of digital payment systems that can help spread use of digital financial services quickly.

We support efforts by the Indian government to digitize government payments to poor households and encourage new digital differentiated banking models. We also work to identify gaps in digital financial inclusion efforts, and we work with private-sector providers to design digital financial products that meet the needs of poor households.

Last year, JPMorgan partnered with the Gates Foundation and the Michael & Susan Dell Foundation to set up the Bharat Inclusion Initiative at the Indian Institute of Management Ahmedabad. How will this foster fintech innovation for low-income and unbanked individuals?

The Bharat Inclusion Initiative (BII) has been set up in partnership with the Bill and Melinda Gates Foundation and other like-minded donors to boost inclusion of the underserved by leveraging innovative technologies. It is a unique program creating an end-to-end ecosystem to train and nurture aspiring entrepreneurs who are building ventures to catalyze financial inclusion. The initiative will support entrepreneurial activities right from the idea stage to the scaling up stage through a series of accelerator programs, focused research, training workshops, and pilot partnerships. The program also works with regulators/policymakers to help entrepreneurs understand and navigate the changing regulatory and policy landscape in the financial services domain. We hope that through our early demonstrations and by helping to bridge the policy and infrastructure gaps, we can catalyze the private sector to serve the poor.

In addition to supporting the entrepreneurial ecosystem, BII is also actively building and disseminating knowledge in nascent spaces such as open banking, insurance, goal-based savings, and participative finance, among others, thereby surfacing high impact, viable use cases that can further enhance financial inclusion. The program also chronicles and shares stories of the “People of Bharat” to bridge the empathy gap between the next billion users and the accompanying ecosystem that will be required. Overall, the program aims at positively impacting the lives of at least 20 million low-income individuals in the next 3–4 years by helping them use asset-building products and build resilience.

How do you measure the impact of your work in financial inclusion? What specific results have there been?

As per the World Bank’s latest FINDEX report, 82 percent of men and 79 percent of women have a formal bank account. However, only 61 percent of men and 53 percent of women use them regularly. The focus now is to encourage the regular use of these accounts. We believe that a pro-poor payment system can foster competition in the financial sector, driving innovation and accelerating the development of digital financial products and services customized for the needs of low-income communities.

Unified Payments Interface (UPI) in India, launched by National Payments Corporation of India (NPCI), is a shining example of what a low cost, real-time, interoperable payments system should look like. With UPI, India now has the payments highway in place. In March 2019, 799 million financial transactions were conducted using UPI. India also has a dynamic banking regulator that has been open to experimenting with differentiated banks. India’s Aadhaar initiative is another example of how digital ID can be used to help low and middle-income (LMI) segments get visible to those interested in serving them. Public and private sector entities are beginning to use these public goods to drive usage of digital financial services across population segments.

We also believe that the country’s private sector has an important role to play. Banks can view new payment providers not simply as competitors, but as partners that will bring millions of new consumers into the financial system—creating new potential customers for the entire financial sector. Fintech and telecom firms need to anticipate rapidly evolving regulations and adapt their business models to new opportunities. Companies in all industries would do well to consider how best to accommodate the financial and personal needs of a vast population that is only beginning to enter the formal economy. This requires creative approaches not only to pricing and distribution but also to more human elements, such as user interface design, marketing, packaging, behavior change, and the potential for product reuse and adaptation.

How have your financial inclusion interventions empowered women? What challenges do you face in making women’s empowerment more pervasive?

Evidence from nearly 100 emerging economies shows that increasing women’s participation in the economy leads to other gains at home, at work, and in society at large. Our focus in financial inclusion is to ensure women have more access to and use of digital financial services, such as bank accounts and digital payment systems, so that they are able to make their own decisions about spending, saving, taking financial risks and building their own and their families’ financial futures.

Given India’s diverse demography, a deliberate focus on enabling financial inclusion for women is a key priority. Economic empowerment programs like increasing women’s access to financial services have huge spill-over effects. Directly, they reduce poverty; indirectly, they encourage women to expand their sense of self and challenge the unwritten rules that say they are inferior to men. The existence of this infrastructure is helpful, but it is simply not enough. There must be continued investment in helping the poor, especially poor women. Leveraging this infrastructure is key. To this end, the Gates Foundation announced a $170 million global investment last year, which, amongst other interventions for women’s economic empowerment, will also include our work on increasing the access and usage of financial services by women.

In India, as a part of this endeavor, we are working with governments and financial services providers to share existing research and commission new research that highlights the importance of considering and intentionally addressing the constraints under which women operate while they design and implement their programs and products. For instance, social cash transfer programs, when directed into women’s bank accounts, have shown the promise of increasing measures of empowerment like their labor force participation, and we are conducting further research in this area to support program implementation that works for women. Similarly, we have supported the development of prototypes for financial products that address constraints that low-income women face. We are continuing to integrate a gender lens across all our current and future work to be more intentional about how our work impacts women’s usage of financial services.

The other areas for this investment will go towards better understanding of how ownership of assets like land might play a role in diversifying women’s economic options, connecting women to new market opportunities to increase their profits and incomes, and elevating and expanding self-help groups, which are critical platforms for bringing women together and building up their collective knowledge, economic power, and voice. We are funding both programmatic initiatives and research.

With your experience as an economist, knowledge management specialist, mCommerce pioneer, and as a consultant, what do you see as the scope of innovation in financial services for the poor in the future? Is the peak behind us?

I do not see the peak behind us. I see clear progress, but I also see clear opportunity. Over 25 years of progressive leadership roles in the private sector across multiple domains have strengthened the idea that use of technology in the development sector is imperative. The funny thing about technology infusion in any sector is that it has completely disrupted the sector, bringing in efficiencies for the organization and making it easier for the consumers to interact with the businesses. The financial sector is probably  one of the last sectors to have courted technology in such a significant way. The implications of this is that access is becoming easier for poor and rural customers, customers are able to buy from multiple product providers, specialist financial service providers can reach out to willing customers/potential customers, back-office operations are becoming more efficient. This is leading to major cost reduction, thereby including those low-income consumers who would not have been profitable for financial service providers otherwise. This innovation will accelerate digital transactions and further fuel innovation in financial regulation  in areas around KYC/AML/CFT (Know Your Customer, Anti Money Laundering, Combating Financing of Terrorism) norms, data protection, ownership and usage, customer protection, grievance redressal mechanisms, among others. I believe that this is just the beginning of the innovation cycle and the best is yet to come.

All images courtesy of the Bill & Melinda Gates Foundation India.

Shakti Saran is an Inclusive World Citizen, Writer and Senior Fellow at PYXERA Global.