Financial inclusion

Many people in the EBRD regions continue to manage their finances outside of the formal banking system. Long spells of unemployment can have serious long-term effects for individuals, such as reduced earnings and social exclusion. Great progress has been made in expanding financial inclusion but challenges still remain.

World Bank research (Findex) shows that an estimated 2.5 billion working-age adults globally — more than half of the total adult population — have no access to the types of formal financial services delivered by regulated financial institutions that wealthier people rely on.

Instead they depend on informal mechanisms for saving and protecting themselves against risk. They buy livestock as a form of savings, they pawn jewellery, and they turn to the moneylender for credit. 

Gender inequalities further influence women’s ability to access finance and their financial inclusion outcomes. Women-led businesses tend to be smaller than those led by men, and concentrated in lower value added and less capital intense sectors. Reasons for this are manifold, including legislation which limits women’s ability to accumulate assets and mobilise collateral, to social perceptions about female entrepreneurship as well as care and other social responsibilities.

Since its creation, the EBRD has strongly promoted financial inclusion by providing credit to small and micro enterprises. Over the last five years it has developed other innovative ways of reaching underserved groups:

Access to business finance: As part of its efforts to promote gender equality and inclusion, the EBRD has launched a series of Women in Business (WiB) programmes that bring together financing and advisory services to help women manage and grow their own small and medium enterprises (SMEs). The Women in Business Programmes have become a flagship EBRD product to promote access to finance to women-led SMEs by building the capacity of local PFIs to recognise and target these groups and by offering advisory services directly to female-led SMEs. The programme is operational in 16 countries to date across the Western Balkans, Central Asia, Eastern Europe and Caucasus, and in Turkey and Egypt.

As part of the Economic Inclusion Strategy, the EBRD is exploring opportunities to promote youth entrepreneurship and related access to finance and business support as a way of addressing some of the challenges related to youth inactivity in some of countries where it works. There is now an increasing focus on this segment by financial institutions, education providers and policy makers.

The EBRD has also  developed products that support the expansion of SME business finance to remote / under-served regions in order to address gaps in availability that are primarily due to the geographic location of a business, rather than its sector or business performance.

Some first examples are in Serbia, Jordan and Turkey, where the EBRD established regional MSME credit lines coupled with small business advisory services. In Turkey and Jordan some of these projects include a focus on regions that are most affected by the refugee crisis.

Financial inclusion through non-cash based payments:  In 2016, the EBRD became a member of the Better Than Cash Alliance, to further enhance its partnership on financial inclusion and to support the mission to advocate the transition from cash to digital payments, in a way that advances financial inclusion - via advisory services and toolkits for governments, businesses as well as via research and conferences.

The EBRD continues to assess the potential of mobile banking as a means of promoting financial inclusion. Previous activities include the engagement with the Central Bank of Tajikistan to create a regulatory framework for mobile financial services and a financial literacy programme for remittance recipients in Armenia, Azerbaijan, Kyrgyz Republic, Georgia, Moldova and Tajikistan.

The EBRD manages a growing portfolio of project-related financial inclusion research. Examples include studies in Bosnia and Herzegovina, Mongolia and Morocco that use randomised control trials to detect the impact of access to microcredit on a host of outcomes, such as consumption, savings and entrepreneurship. Economic experiments are being used to analyse supply side barriers for women’s access to finance in Turkey.