Facilitating Market Development to Advance Financial Inclusion

The work of developing financial services for the poor has evolved considerably over the past 30 years. The genesis of today’s picture is the sustained effort in the 1970s and 1980s of donors, nongovernmental organizations (NGOs), and governments to design and use—in countries across the globe—new methods of providing the poor with access to affordable and manageable credit. The 1990s introduced the initial wave of “commercializing” these efforts through greenfields and the transformation of NGO microfinance
institutions (MFIs) into for-profit finance companies, nonbank deposit-taking institutions, and banks. Donors and development finance institutions (DFIs) enabled many of these commercial ventures directly through capital investment and indirectly through support to regulators and policy makers and through ongoing efforts to build financial systems infrastructure—particularly, credit information systems and rating agencies. These uses of subsidized funding—to promote innovations that serve as demonstration models and to fund public goods, such as evidence-based policy advice and enabling environments—are consistent with responsible market development.

This Focus Note from CGAP discusses several areas critical to building financial markets that work for the poor: information, capacity building, incentives, and a well-designed enabling environment.