This report, from the Economist Intelligence Unit, is a “global microscope” study of the enabling environment for financial inclusion in 55 low to middle income countries. Created in 2007, the global microscope is a benchmarking tool that evaluates how policy, regulation and infrastructure enable the provision of financial services to low and middle-income populations. It looks at a broad suite of financial services, including deposits, savings, credit, insurance and remittances.

In this report, the global microscope examines the role of financial inclusion in governments’ response to the COVID-19 pandemic. In 2020 the global health crisis provoked by the pandemic shuttered large parts of the global economy as governments imposed lockdowns to mitigate the spread of the virus. The economic consequences of these lockdowns affected the poor disproportionately. This challenged regulators and policy makers who put financial inclusion at the centre of their priorities as they tried to reach those who were most affected by the lockdowns.

The report provides data on how each of the 55 countries assessed leveraged their financial industry structures to be more resilient and inclusive and, thereby, support vulnerable individuals, small businesses and the financial providers that serve poor households. The countries were assessed across five dimensions, namely, government and policy support, stability and integrity regulation, products and outlets regulation, consumer protection, and infrastructure. Each dimension is made up of indicators and questions for which scores were allocated.  Based on these assessments, the report presents five key findings and gives examples of action taken by countries on those issues.

The first of these key findings is that investing in digital financial infrastructure meant that governments could use digital distribution channels to pay funds to beneficiaries in need quickly, securely and on a large scale. Such infrastructure includes high levels of access to identification, mobile phones and financial accounts. This will have positive and long-lasting effects on financial inclusion.

Second, digital identification can facilitate verification for cash transfers, but better data integration is needed to target beneficiary populations. In this respect, although governments ran financial support programmes in response to the pandemic, the challenge was properly identifying those beneficiary populations. Digital identification systems could facilitate that process when integrated with other systems such as social registries or tax databases.

Third, financial institutions have increased their efforts to promote digital channels and remote banking. Expanding service channels and moving them closer to excluded customers, whether physically or virtually, has long been a strategy to increase financial inclusion.

Fourth, governments need to support the financial institutions that serve populations most affected by the economic crisis caused by the pandemic. Economic shutdowns upended business models for many financial institutions that target the poor. Those institutions include microfinance institutions, mobile money providers and cash-in, cash-out agents. Economic recovery requires that they remain operational. Their collapse represents a social risk given the millions of low-income customers they serve.

Finally, as the growth of digital financial services creates new risk of financial fraud for users of those services, governments will need to introduce comprehensive data privacy and cybercrime protections.

1. In the economic crisis caused by the COVID-19 pandemic, financial inclusion became a government priority to enable the provision of financial assistance to the most vulnerable, who would be disconnected from the financial system and lack access to it.
2. As economies slowed down under lockdowns, those without savings quickly needed support and this was enabled by digital financial infrastructure. Of the 55 countries assessed, 28 leveraged digital infrastructures to distribute payments via financial or mobile money accounts.
3. Many countries studied lack sufficient digital connectivity for citizens to be able to rely exclusively on digital solutions for social assistance payments. Increasing their utility will require solutions for phones and smartphones, as well as the provision of training to those who may have previously lacked access to these technologies.
4. Providing digital identification for all individuals is a vital support for increasing financial inclusion and improving access to financial services. Fifty of the 55 countries assessed have a national “ID” system that is at least partially digitised. However, in many of the countries assessed, access to identification is not universal.
5. While digital identification can help facilitate the delivery of social assistance cash transfers, it needs to be integrated with other systems to ensure those benefits reach the most vulnerable. This is particularly the case for women who are disproportionately employed in the informal sector and have lower levels of access to mobile phones and digital identification.
6. Proportional customer due diligence and the approval of electronic "Know Your Customer" (e-KYC) schemes that facilitate remote and digital account opening, are essential for creating an inclusive digital financial system. The use of these methods by some countries assessed led to the opening of 60 million new accounts. However, more than half of the countries assessed have not formally implemented e-KYC methods.
7. While being able to open a new account is an important step towards increasing financial inclusion, real inclusion can only be achieved when users find value in using the accounts in the long term. Some countries assessed have tried to encourage digital transactions and strengthen the case for using their accounts through waiving transaction fees and increasing transaction limits.
8. Financial inclusion strengthens resilience and enables low-income individuals to take advantage of productive opportunities. These benefits are in jeopardy if financial services providers that target these communities collapse. Such institutions face a challenging business environment and need government support. Most countries assessed lack the capacity to provide that assistance.
9. Governments will have to address the risk of cybercrime emerging from the growth of digital financial services and thereby foster trust among users. Most of the countries assessed do not have standards that deal with comprehensive data privacy and cybercrime protections, including through appropriate consumer protection regulations.
10. The report contains the following resources:
    • Individual assessments of the countries studied and charts and tables relating to those assessments and the key findings.
    • Examples or case studies of financial inclusion practised by some of the countries assessed.
    • An appendix giving a detailed description of the methodology used for the global microscope assessment.