Financial Inclusion, Women, and Building Back Better1 JAKE HESS, LEORA KLAPPER, AND KATHLEEN BEEGLE 06/2021 INTRODUCTION Financial inclusion occurs when adults have access to appropriate, 140 million people—of which 80 million are women—opened their affordable, and well-regulated financial services to meet their first accounts to receive digital government payments, such as needs effectively and improve their lives. Financial inclusion is a safety net subsidies, public pension funds, or public sector wage growing global phenomenon. Since 2011, more than one billion payments, according to the Global Findex (Demirgüç-Kunt and adults have opened an account at a financial institution, such as a others 2018). Government COVID-19 relief and recovery payments bank or a mobile money provider. Despite the progress, however, create opportunities to rectify the gender gap in financial inclusion, women continue to lag behind men. In low- and middle-income mitigate the pandemic’s economic fallout, and build resilience economies, men are 9 percentage points more likely than women against future emergencies. In addition, the momentum brought to have an account, a gender gap that has stubbornly persisted. on by the policy responses to the pandemic offers opportunities And there is considerably variation among countries (map 1). to tackle long-standing challenges to financial inclusion. This note outlines critical priority areas toward this goal. Responding to the COVID-19 pandemic, governments across the world are providing relief payments and financial support to citizens and businesses. If such transfers could be transacted digitally, FINANCIAL SERVICES BUILD this might help unbanked people—especially women—obtain RESILIENCE AND CAN ADDRESS accounts for the first time. Digital government payments are a proven way to boost women’s financial inclusion. Globally, roughly GENDER INEQUALITY There are signs that women are disproportionately suffering from Map 1: The gender gap in account ownership COVID-19 economic effects. In terms of income opportunities, women-led firms have been hit harder compared to male-led Gender gap in account ownership firms (Torres et al. 2021) and likewise in terms of jobs (Kugler et al. Percentage point difference in percent of men and women with 2021). These impacts reflect a combination of factors: the sectors an account, 2017 in which women were working or operating firms before the crisis, how women benefit from assistance during the crisis, and norms in terms of domestic care work (especially out of school children). The United Nations documents 992 measures taken by 164 countries and territories in response to COVID-19. This includes 177 measures taken in some way to address women’s economic security (UN Women and UNDP 2020). Many governments have responded to COVID-19 by giving money to citizens through digital channels. In Sub-Saharan Africa, cash transfers make up more than 80 percent of relief programs announced since the pandemic.2 Contactless digital relief payments are especially welcome in this era of social distancing. IBRD 45113 | JULY 2020 Insignificant or 10 and below 11-20 11-20 positive gender gap The authors are thankful to Yasmin Bin Humam, Miriam Bruhn, Caren Grown, Antonique Koning, Margaret Miller, and Jean Pesme for their valuable comments and suggestions. 1  2 See Policy Responses to COVID-19: Policy Tracker (dashboard), updated October 24, 2020, International Monetary Fund, Washington, DC, https://www.imf.org/en/Topics/imf-and-covid19/ Policy-Responses-to-COVID-19. 1 Digital government transfers have several benefits for women. Digital connectivity They can provide a safe way to store money, and they can create Digital technology—such as mobile phones—is key to making opportunities for women to explore other digital financial services effective COVID-19 relief and recovery payments. While it is too beyond accounts, such as remittances. Research shows that early to assess the impact and effectiveness of digital government financial services help people manage economic risk. Mobile COVID-19 relief payments, preliminary information speaks to the money accounts—which are operated on simple phones using text opportunities and challenges at hand. In Togo, the government messages—make it much easier for people to receive remittances has used mobile phones to rapidly disburse cash transfers. In April from relatives and friends, not least during an economic crisis. 2020, the authorities created a new cash transfer payment worth at The use of mobile money has been shown to improve the ability to least 30 percent of the minimum wage, with amounts ranging from protect households against unexpected shocks in Kenya (Jack and US$18 to US$34. About two-thirds of the recipients were women, Suri 2014) and in Tanzania (Riley 2018) and increased food security according to official data. Overall, nearly 1.5 million individuals in Uganda (Wieser et al. 2019). registered, and more than half a million had received a payment Women have distinct financial needs that make them especially as of autumn 2020. Starting in April 2020, Morocco disbursed likely to benefit from the cost savings associated with mobile monthly mobile payments of US$80 to US$120 to households that money. Financial diaries suggest that women typically handle qualified for subsidized health insurance, covering 85 percent of daily household expenses and risk management and tend to make eligible households in the informal sector.3 Argentina rolled out high-frequency, low-value transactions. Women also collect a relief payments to more than 9 million households. The payments disproportionate share of their incomes from person-to-person were targeted at the unemployed, domestic workers, and informal remittances from family and friends. While men often focus on workers, and women were often designated as the beneficiaries earning money and investing for the future, women are often (UN Women and UNDP 2020). expected to look after older relatives, take care of children, run Women are at risk of missing out on support delivered digitally family farms, organize side businesses to raise extra money, and if they lack access to digital technology. In almost all low- and finance family events, such as weddings and funerals (Zollmann middle-income economies, women are significantly less likely and Sanford 2016). than men to have a mobile phone (map 2). In some countries, the Financial services also help people build the savings they need gap is especially large. As of 2019, according to the Gallup World to recover from an economic setback and reduce their reliance Poll, only 42 percent of women in Pakistan had a mobile phone, on expensive or risky tools, such as credit. Women in Chile compared with about 80 percent of men.4 Conservative social who received free savings accounts reduced their reliance on attitudes help explain these gaps. Field research in India found loans and improved their ability to make ends meet during an that many people believe that, if women had mobile phones, they economic emergency (Kast, Meier, and Pomeranz 2018). In Kenya, would be less likely to remain chaste before marriage and less researchers found that women who received mobile savings attentive to their children and husbands after marriage (Schaner accounts were less likely to use transactional sex to raise money and Theys 2018). Research has also found that improved access during a financial emergency (Jones and Gong 2019), and woman- to mobile phones does not automatically improve women’s well- headed households increased their savings when they adopted being (Highet, Singh, and Salman 2021). mobile money (Suri and Jack 2016). COVID-19 relief payments might help women develop savings if they are made digitally. In Map 2: The gender gap in mobile phone ownership India, weekly payments resulted in significantly higher savings among a group that received the payments into accounts, but not Gender gap in account ownership among a group that received identical payments in cash (Somville Percentage point difference in percent of men and women with and Vandewalle 2018). a mobile phone, 2019 FOCUS AREAS FOR BUILDING FINANCIAL RESILIENCE THROUGH DIGITAL SYSTEMS IBRD 45183 | JULY 2020 Policy responses to COVID-19 economic shocks are critical in assisting households and firms hit hard. But they are also an opportunity to build financial inclusion through digital approaches. The analysis here highlights six priorities for governments and stakeholders looking to harness the COVID-19 recovery to expand financial inclusion through digital technology and build resilience to future crises. Insignificant or 10 and below 11-20 21-30 positive gender gap See Policy Responses to COVID-19: Policy Tracker (dashboard), updated October 24, 2020, International Monetary Fund, Washington, DC, https://www.imf.org/en/Topics/imf-and-covid19/ 3 Policy-Responses-to-COVID-19. See Gallup World Poll, Gallup, Washington, DC, https://news.gallup.com/topic/world_poll.aspx. 4 2 In economies with large unbanked populations, it is still possible Digital financial capability to make digital relief and recovery payments without relying Women need financial training as they rapidly take up digital on accounts. Guatemala, for example, has used a unique code payments and formal financial services for the first time. Although payment through a mobile application. People who qualify for many countries have achieved gender parity in schooling, women the program receive a note on their electricity bill that provides still lag behind men in basic numeracy and literacy among the registration instructions; beneficiaries are required to supply population of adults. There are different ways to address the a mobile phone number and a national ID number. Eligible financial literacy gap between men and women. Evidence suggests participants then receive text messages with payment codes that that traditional classroom-based approaches to the teaching of can be used at point-of-sale terminals and ATMs (Gentilini and financial skills are generally ineffective (IPA 2017). Technology can others 2020). Of course, big challenges remain for people who help. In Colombia, rural recipients of conditional cash transfers— lack national ID numbers or are not enrolled in such non-banking most of them women—were loaned computer tablets loaded with programs with digital accounts. entertaining content to boost their financial capability, which Digital SME financing proved to be beneficial to financial health (Attanasio and others 2019). It might be more effective to provide financial education As governments begin to recover from the devasting impacts of during teachable moments when people have a specific need for COVID-19 on small and medium enterprises (SMEs), the crisis learning the skills. For example, researchers found positive results presents an opportunity to address the gender gaps in SMEs. in savings and remittance outcomes if they trained migrants and Many SMEs, especially woman-owned firms, lack the credit and their families together (Doi and McKenzie 2014). insurance tools they need to both grow their business and build resilience. Woman-owned firms have been severely affected by People also gain financial education through experience. In the pandemic (Torres et al. 2021). Digital tools and approaches can Bangladesh, workers who were paid through mobile accounts help address such challenges. COVID-19 recovery should leverage were more likely to send home remittances without obtaining new fintech approaches and alternative sources of information, help from agents, which suggests that the experience of receiving such as digital transaction histories, airtime purchases, internet digital wage payments made the workers savvier financial users browsing habits, and payments of rent and utility bills. (Breza, Kanz, and Klapper 2020). Information delivered through text messages can have positive impacts on outcomes such as An example of an alternative credit lender is JUMO, a South African savings (Karlan and others 2016). As women (and men) become technology platform that uses artificial intelligence and machine newly enrolled in COVID-19 relief and recovery payment schemes, learning to analyze mobile usage data to create financial identities governments and banks can use technology informing them for underserved SMEs. JUMO collects data from mobile network clearly how much money they should be receiving, the closest operators across South Asia and Sub-Saharan Africa. It has more operating cash-out point, and the expected fees. Governments than 15 million unique SME customers and has disbursed more can also provide basic information about operating accounts. In than US$1.5 billion in funding. JUMO analyzes more than 10,000 Jordan, people who receive COVID-19 relief payments have the behavioral signals to gauge creditworthiness and offer customized option of using a demonstration e-wallet to build trust and comfort savings and loan products directly to SMEs over mobile phone. using digital payments (Gentilini and others 2020). Such products might be especially relevant to women because women are less likely than men to have the collateral, formal A supportive regulatory framework documentation, and formal employment needed to qualify for Regulations help create the conditions that let fintech, including loans, which means women stand to benefit from alternative credit mobile money, thrive. A forthcoming analysis of Global Findex information disproportionately (GPFI 2020b). and GSM Association data finds that mobile money penetration Wider use of digital merchant payments could help women is significantly greater in Sub-Saharan African economies with gain access to credit by building an alternative credit history. In supportive legal frameworks. Regulations on know-your-customer Indonesia, for example, millions of women earn a living using apps, (KYC) requirements, authorization, and consumer protection are such as GoFood and Grabfood, that connect small food vendors especially significant. KYC refers to the regulations that customers with buyers over digital platforms (GPFI 2020a). A challenge for must fulfill—such as providing documentation—before being able the private sector is to offer digital payment products that can to open an account. Excessive KYC rules create administrative outcompete cash and are relevant to women’s financial needs. A hassles for financial institutions and place undue burden on common view is that cash is more convenient and reliable than the underserved customers—such as women and the poor—who digital alternatives. pose no systemic or integrity threat to the financial system. More flexible, risk-based KYC requirements can make it easier to The public sector can galvanize digital SME finance by addressing expand financial inclusion without threatening financial stability several shortcomings. This includes revisiting regulations. and integrity. Authorization requirements—such as allowing In Bangladesh, for example, merchants are barred from nonbank agencies to offer mobile money services, the existence simultaneously serving as cash-out agents and accepting digital of legislative/regulatory frameworks governing mobile money, merchant payments because of concerns about tax arbitrage. and guidelines around capital requirements or international Agents can be designated as essential workers and be permitted remittances—are also key to effective mobile money regulation, to stay open during lockdowns. There is also a need to improve and ensuring that their design and implementation is risk based core infrastructure, including electricity and internet. and proportionate and does not impede financial inclusion as a priority. 3 Recent research confirms that supportive mobile money Invest in complementary infrastructure regulations can be especially useful among women. Researchers Ensuring that women have access to IDs is vital to ensuring at the GSM Association analyzed the relationship between mobile digital COVID-19 relief and recovery efforts. In Chile and Thailand, money adoption and regulations in 46 countries. They found a for example, governments have used identification to rapidly positive correlation between good regulations and mobile money enroll eligible beneficiaries in payment relief programs. Pakistan uptake, noting that tiered KYC requirements and laws allowing leveraged biometric identification to provide emergency assistance mobile agents to register customers could be significant in to about 67 million individuals. But women often lag behind men in enabling mobile money use among women and the poor (Bahia, ID ownership. According to Global Findex-ID4D data, 74 percent of Sánchez-Vidal, and Taberner 2020). men and 65 percent of women have ID in Sub-Saharan Africa—a Consumer protection has a major role in shoring up trust in gender gap of 9 percentage points.5 Such gaps can put women at the financial system. Deceptive practices are widespread in a disadvantage as governments link COVID-19 relief and recovery the financial services industry. A mystery shopper audit of to ID ownership. microfinance institutions in Uganda found that loan officers Identification has been central in verifying eligibility for relief failed to provide consistent information on costs. Inexperienced programs and combatting fraud. With the rapid rollout of digital borrowers received less information than experienced borrowers, payments during COVID-19, authorities have occasionally and printed materials on borrowing costs were missing or failed struggled to reach beneficiaries. Some payment recipients provide to meet guidelines. Evidence of differential treatment by sex was incorrect, inconsistent, or incomplete data. Fraud attempts are also found. For example, 58 percent of men customers received legion. Identification data can be crucial in addressing such information on the total cost of credit, while only 41 percent of issues. In South Africa, for instance, authorities validate account women received the same (Atuhumuza and others 2020). An numbers by cross-referencing social security records and rely on example of a straightforward and effective consumer protection is the support of banks and taxation authorities. requiring banks to present clear, simple facts about their products. Studies in Mexico and Peru found that, compared with financial People will only use digital payments if these are safer and literacy, clear statements of key facts were more strongly correlated more convenient than cash and are relevant to their needs. In with good financial decisions (Gine, Cuellar, and Mazer 2017). economies with weak digital payments infrastructure, recipients have withdrawn their full COVID-19 benefits in cash. Service Some COVID-19 response measures raised consumer protection providers have struggled to keep up with the sudden increase in issues. For example, governments have had to adjust regulatory demand because of the sanitary challenges, shortages of paper frameworks to disburse digital relief payments quickly and currency, limited branch hours, and staffing problems. Rapidly accurately during COVID-19. Some have enacted reforms that expanding agent networks and onboarding merchants to digital allow public authorities to gather data to identify accounts at payment acceptance are critical to expanding digital financial payment service providers. Colombia and Peru, for example, inclusion (Gentilini and others 2020). Offering women a choice issued emergency measures allowing the public sector to access on how they access government payments might make program and share such information with key stakeholders (Gentilini and implementation smoother (Chen and Mai 2021). These investments others 2020). In such cases, it is vital for authorities to protect the will help economies become more resilient beyond the COVID-19 confidentiality of customer data vigorously. crisis and into the future. Governments have also adopted various policies to encourage digital payments during the pandemic. Egypt, for instance, raised CONCLUSION daily limits on transactions made via mobile phones. Tanzania Digital government payments play a vital role in helping people made similar changes, increasing daily transaction limits on manage economic crises. They also increase financial inclusion mobile money operators from about US$1,300 to US$2,170, while as previously unbanked adults open accounts to receive the the daily balance limit was doubled, to US$4,340. Burundi asked payments. Many economies have leveraged mobile phones private banks to cut fees for mobile money and private bank and national identification systems to provide relief to citizens. transfers to reduce the need for people to withdraw cash at banks, But women are at risk of missing out because they are less while Rwanda instructed mobile network operators to waive fees likely than men to have access to these tools. Strengthening on transfers and payments; given that women are generally poorer digital connectivity, building financial capabilities, investing in than men, such measures may disproportionately help women. financial infrastructure, and introducing regulations that enable Some economies have relaxed KYC requirements for opening the development of a healthy financial system will not only help digital accounts, such as Guinea and the Philippines, or created address the digital divide between men and women, but also build new flexibility such as remote account opening, for instance financial resilience to mitigate future economic crises. Morocco. Others have taken measures to encourage lending, such as Egypt, which eased KYC requirements for micro borrowers and suspended the blacklisting of debtors. 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