metadata: authors: 0: author: Ansar,Saniya
1: author: Klapper,Leora
2: author: Singer,Dorothe
count: World
docna: 0: docna: The Importance of Financial Education for
            the Effective Use of Formal Financial Services
docty: Policy Research Working Paper
abstracts: cdata!: This paper examines global data on
            unbanked and underbanked consumers to highlight the role
            that improved financial literacy and capability could play
            in motivating and enabling the safe and beneficial use of
            financial services. The paper uses data from Global Findex,
            a demand-side survey on ownership and use of accounts at
            formal financial institutions. The paper reviews the
            self-reported barriers to account ownership and use cited by
            unbanked adults, and identifies the challenges faced by
            account owners who could not use an account without help.
            Together, these issues point to the importance of financial
            education to improve digital and financial literacy skills,
            in addition to product design that considers customer
            abilities, and strong consumer safeguards to ensure that
            customers benefit from financial access.
display_title: The Importance of Financial
            Education for the Effective Use of Formal Financial Services
listing_relative_url: /research/2023/03/34016763/importance-financial-education-effective-use-formal-financial-services
topicv3: Financial Capability m1327248 1255,Financial Inclusion m1327456 363,Financial Literacy m1504979 3391,Financial Consumer Protection m1504981 3740,Digital Finance m1505046 3814
publishtoextweb_dt: 2023-03-07T00:00:00Z
dois: 10.1596/1813-9450-10345
origu: Off of Sr VP Dev Econ/Chief Econ (DECVP)
author_keys: 0: author_key: 1205411
1: author_key: 390572
2: author_key: 1059220
model_extractions: Policy Research Working Paper 10345 The Importance of Financial Education for the Effective Use of Formal Financial Services _Saniya Ansar Leora Klapper Dorothe Singer_ Development Economics Development Research Group March 2023
Policy Research Working Paper 10345

# **Abstract**

This paper examines global data on unbanked and underbanked consumers to highlight the role that improved financial literacy and capability could play in motivating and enabling the safe and beneficial use of financial services. The paper uses data from Global Findex, a demand-side survey on ownership and use of accounts at formal financial institutions. The paper reviews the self-reported barriers to account ownership and use cited by unbanked adults, and identifies the challenges faced by account owners who could not use an account without help. Together, these issues point to the importance of financial education to improve digital and financial literacy skills, in addition to product design that considers customer abilities, and strong consumer safeguards to ensure that customers benefit from financial access.

This paper is a product of the Development Research Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at sansar1@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **The Importance of Financial Education for the Effective Use of Formal Financial Services***

**Saniya Ansar** World Bank 1818 H St NW, Washington DC <u>sansar1@worldbank.org</u>

**Leora Klapper** World Bank 1818 H St NW, Washington DC <u>lklapper@worldbank.org</u>

**Dorothe Singer** World Bank 1818 H St NW, Washington DC <u>dsinger@worldbank.org</u>

**JEL classifications** : G53, G51, G21, G23

**Keywords:** financial inclusion, digital finance, account ownership, mobile money

* We are grateful to Alexandra Norris, Mansi Vipin Panchamia, and Jijun Wang for outstanding research assistance and to Laura Starita for excellent editorial support. We also appreciate the helpful comments received from Annamaria Lusardi. The opinions expressed in this paper do not necessarily reflect the views of the World Bank, its executive directors or the countries they represent.
# **1. Introduction**

<mark>Financial inclusion, or the extent to which people have access to useful and affordable financial products that meet their financial needs, is a cornerstone of economic development (DemirgucKunt et al. 2022). Access to financial products at banks and other brick-and-mortar institutions, as well as digital-only services—such as with a mobile money or other fintech provider—can allow individuals to formally save, borrow, make payments, and manage financial emergencies.</mark> While formal financial services can benefit households, adults need to understand the risks and costs of these services to use them effectively. Fraud, over-indebtedness, and misunderstandings about account terms and fee structures pose serious risks to users who lack proper knowledge and financial education (Garz et al. 2021).

Using data from the Global Findex 2021 survey for 79 middle- and low-income (“developing”) countries, we present descriptive statistics on unbanked adults (who do not have an account at a formal financial institution, including mobile money services) and on adults with an inactive account (who did not make a deposit, withdrawal, or digital payment in the past year). We also present new data on financial capability, and discuss the role improved financial capability could play in motivating and enabling adults to use financial services safely and to their benefit. These findings are supported by results from multivariate regressions.

Our paper makes three contributions. First, we contribute to the literature by quantifying the number of unbanked around the world and identifying who the unbanked are in terms of individual characteristics such as gender, income, educational attainment, age, and employment status. Understanding the demographic and income characteristics of the unbanked in a specific economy can help focus research and educational outreach to the populations most likely to 2
benefit from interventions. It can also inform product design and policies to ensure that available financial services reflect the abilities and needs of the target audience.

Second, we document and examine the reasons the unbanked give for not having an account. In addition, for a subsample of 25 Sub-Saharan African countries, we examine why unbanked adults do not have a mobile money account. Understanding why people do not have an account could help in designing targeted financial education policies focused on expanding access to formal financial services.

Third, we document the reasons adults who have an account give for not using their account. As with the unbanked, understanding why people _with_ an account choose not to use their account can help target financial education on the benefits of formal financial services.

Our findings can be summarized as follows. The Global Findex 2021 data on who the unbanked and underbanked account holders are, combined with insights into the barriers they face, point to the role financial education can play in building financial aptitude as a key strategy for increasing financial inclusion. In particular, we document that 1.4 billion adults—or 24 percent of adults—worldwide remain without a financial account, making them _unbanked_ . Seven countries are home to more than half of the world’s unbanked population. We also show that unbanked adults are significantly more likely to belong to typically underserved groups, such as women, poor adults, less educated adults, and young adults. The data on self-reported reasons for not having an account show that a lack of financial abilities seems to constitute an important barrier.

Furthermore, in two case studies we examine how adults with an account use it. We consider India, which, at 35 percent, has the world’s highest rate of inactive accounts—seven-times the 3
average for developing countries excluding India—and we ask adults with inactive accounts why they do not use them. We also examine whether adults in Sub-Saharan Africa can use their mobile money account without help from an agent, friend, or family member. These data point to an opportunity for financial education to build stronger financial capability in order to improve efficient and effective use of accounts.

This paper is organized as follows. In section 2, we review the literature on the importance of financial inclusion for development and the link between financial literacy and education and the use of financial services. In section 3, we describe the Global Findex 2021 database. In section 4, we explore what the Global Findex 2021 data reveal about where and who the unbanked are. In section 5, we investigate the self-reported barriers to account ownership. In section 6, we explore the reasons why account owners do not use their accounts using a country case study on the barriers behind the inactivity rates in India. We further explore whether mobile money account owners in Sub-Saharan Africa are able to use their mobile money accounts without help. Section 7 concludes.

# **2. Literature review**

# **_2.1 Why financial inclusion matters for development_**

The use of financial services is associated with numerous positive outcomes, including greater savings (Breza et al. 2020; Blumenstock et al. 2018); crime reduction (Wright et al. 2017); more efficient wage payments (Dusza 2016); decreased fraud and administrative inefficiencies (Muralidharan et al. 2016); greater female workforce participation (Field et al. 2021); and increased crop yields for farmers (Lasse et al. 2016). Additionally, the use of formal financial services has important implications for the ability of account holders to weather negative 4
economic shocks, both through facilitating greater savings (Pomeranz and Kast 2022), and allowing for people to more easily share money and risk with others (Jack and Suri 2014; Riley 2018).

Digital financial services, such as mobile money, have been shown to protect users from some of the consequences of unexpected income drops by allowing users to easily receive payments from geographically dispersed social networks (Jack and Suri 2014) and improving risk-sharing within communities (Riley 2018). Mobile money is also associated with an increased likelihood that users will access formal health services when sick or injured (Haseeb and Cowan 2021). Digital payments make the practice of sending and receiving remittance payments more efficient, resulting in greater payment values and consequently, greater consumption in rural communities (Munyegera and Matsumoto 2016; Lee et al. 2021).

The use of formal financial services also has implications for gender equality. Account ownership is associated with greater financial independence and empowerment for women, allowing them increased decision-making power within their households and greater needsspecific spending (Ashraf et al. 2010). Female account ownership is also associated with increased spending on nutritious food (Aker et al. 2016; Prina 2015), increased savings that can be used in financial emergencies (Pomeranz and Kast 2022), and even changing social norms regarding female employment (Field et al. 2021). The use of digital financial services has also been found to positively impact female development outcomes, lowering rates of poverty and increasing consumption for women (Suri and Jack 2016), reducing reliance on high-risk income sources like transactional sex (Jones and Gong 2021), and reducing both travel and wait times to receive benefits like school subsidies for their children (Gelb et al. 2019).

5
# **_2.2 Financial literacy, education, and use of financial services_**

Previous studies have examined the relationship between greater financial literacy and financial education and use of financial services. Multiple studies have found that people with more years of general education are more likely to save and invest, leading to higher financial market participation and lower probabilities of bankruptcy (for example, Cole et al. 2014). Furthermore, a recent meta-analysis of the evidence highlights the effectiveness of financial education on financial knowledge and behavior (Kaiser et al. 2022). Surveys measuring levels of financial literacy have also shown relationships with usage of financial services and savings and borrowing (Klapper and Lusardi 2020; OECD 2020).

It could also be possible that account usage and the experience with using an account can improve financial literacy. Cross-country analysis finds higher financial literacy to be associated with greater financial inclusion as measured by account ownership, debit card ownership, using an account to save, and using a debit card in the past year at the country level (Grohmann et al. 2018). For instance, “learning by doing” financial literacy training conducted while opening an account was associated with more frequent and savvy account usage (Breza, et al. 2020; Lee et al. 2021). Presenting customers with simplified key facts about financial products likewise was associated with better product selection (Giné et al. 2017). In fact, the use of digital payment tools and platforms was found to be associated with higher digital literacy, at all levels of financial literacy (Lo Prete 2022). Additionally, easily available real-time information on account balances can increase user trust and account usage (Bachas et al. 2021).

6
# **3. Data**

This paper uses data from the World Bank Global Findex (Demirguc-Kunt et al. 2022) to document current trends in account ownership and usage and identify ongoing barriers to financial inclusion.<sup>1</sup> The Global Findex is the world’s most comprehensive database on financial inclusion and the only data source collected directly from users of financial services that allows for global and regional cross-country analysis to provide a rigorous and multidimensional picture of how adults save, borrow, make payments, and manage financial risks. The data can be used to also identify gaps in access to and usage of financial services by specific groups. Since 2011, the database has triennially collected indicators on access to and use of formal and informal financial services and digital payments, and behaviors that enable financial resilience.

The 2021 edition is based on nationally representative surveys of 128,000 adults in 123 countries, including both high income and developing countries. Fewer than 4 percent of the unbanked live in high-income countries. Thus, in our empirical analysis we focus on developing countries.<sup>2</sup> Table 1 presents the summary statistics of the individual characteristics for the 79 developing countries used in our multivariate regression analysis. In our sample, 50 percent of adults are women and the average age of adults is 37.25 years. Just over half of adults in the sample (51 percent) have primary education only. The average household size is 4.61. In terms of employment status, 26 percent of adults are employed for a wage, 25 percent are selfemployed, 9 percent are unemployed, and 39 percent are out of the labor force.

> 1 The country and individual-level data, along with the questionnaire, glossary, survey methodology and other relevant materials, are available at: https:/globalfindex.worldbank.org.

> 2 See Table A.1, Panels A and B, for a summary of the percent of the unbanked around the world.

7
**Table 1. Summary statistics, 2021**

|**Variable**|**Number of**<br>**Observations**|**Weighted**<br>**mean**|**Standard**<br>**Deviation**|**Min**|**Max**|
|---|---|---|---|---|---|
|Women|81,106|50%|0.5|0|1|
|Poorest 40% of within-country household<br>income distribution|81,106|40%|0.5|0|1|
|Age (years)|81,106|37.25|16.2|15|99|
|Primary education only|81,106|51%|0.5|0|1|
|Household size|81,106|4.61|2.8|1|26|
|Unemployed|81,106|9%|0.3|0|1|
|Out-of-workforce|81,106|39%|0.5|0|1|
|Self-employed|81,106|25%|0.5|0|1|
|Employed for wage|81,106|26%|0.5|0|1|

Source: Global Findex database 2021.

Note: Summary statistics are shown for 79 low- and middle-income countries. The full list of countries is shown in Appendix table A.1. The summary statistics exclude China due to missing data on employment status.

# **4. Who are the unbanked?**

Our measure of financial inclusion is ownership of an account—that can be used to store money and send or receive payments—at a regulated financial institution, including mobile money service providers. Looking at all countries covered in the database, the Global Findex 2021 data finds that globally, 76 percent of adults surveyed had a financial account in 2021—a 50 percent increase from 2011, when only 51 percent of the global adult population had an account.<sup>3</sup> Yet, about 1.4 billion adults—or 24 percent of adults—worldwide remain without a financial account (Figure 1) or are _unbanked_ . The share of unbanked as a percent of the population varies significantly across countries (Table A.1). While there are, on average, virtually no unbanked in high income countries (4 percent on average), the share increases to 29 percent in developing countries, ranging from 2 percent in Mongolia to a staggering 94 percent in South Sudan.

> 3 The Global Findex defines a “financial account” as any account with a regulated financial institution, such as a bank, credit union, microfinance institution, or mobile money provider.

8
<!-- Start of picture text --> "> a "a sop UFOS<br>lat } ae f be | We) ‘ ‘<br>\ my N , oo. my<br>*- 1millionsupe aaa> beleespee - a 7 eo a<br>—@ aye ko — ot) a l ; : ql<br>10 million \wren Ly ° ys<br>@ 100 mittion iw “00<br>@ 200 mition iv<br>- \ a - 7 ;- pa 4 JUNEIBRD 466592022 |<br><!-- End of picture text -->
<!-- Start of picture text --> Rest of the world Bangladesh<br>China<br>Egypt,<br>Arab Rep.<br>17 India<br>7<br>8 5 Indonesia<br>Nigeria<br>Pakistan<br><!-- End of picture text -->
the contrary, countries that would seem to have similar economic environments for financial inclusion and equal track records at increasing financial account ownership (or not) show radically different patterns related to gender and account ownership.

India, for example, has achieved significant and equitable growth in account ownership, such that the country has now no discernible gender gap. Yet in other countries with successful increases in overall account ownership, women still represent the majority of the unbanked. For example, Brazil, China, Kenya, and Thailand have relatively high rates (about 80 percent of higher) of account ownership compared with their developing economy peers, and yet a majority of their unbanked are women. Türkiye also has a 74 percent account ownership rate, yet of the 26 percent of adults who are unbanked, 71 percent are women. Women also make up the majority of unbanked adults in countries with account ownership rates below 50 percent, such as Egypt, Guinea, and Pakistan.

Unsurprisingly, low household income also correlates with a lack of account ownership, such that the poorest 40 percent of households worldwide make up nearly half of all the unbanked. As with gender, income level affects the unbanked population averages more in some places than in others. In East Asia and Pacific, for example, 53 percent of unbanked adults overall are in the poorest 40 percent of households, whereas in China specifically (a country with an 89 percent account ownership rate), a higher percentage, 60 percent, of the unbanked live in the poorest 40 percent of households.

The impact of income on account ownership, however, is likely to be influenced by multiple coexisting factors, also linked to income, including gender, formal employment (adults who are unemployed or out of the workforce—another category in which women are over-represented— tend to live in poorer households), rural residence (rural adults are more likely to have lower 11
incomes than urban residents), educational attainment (less-educated adults tend to be poorer), and age (younger adults aged 25 and under and older adults aged 65 and over are both more likely to live in lower-income households than prime working-age adults). Each of these subfactors is also associated with being unbanked, as discussed below.

Employment status is strongly associated with account status in several countries: 70 percent of unbanked adults are unemployed or out of the workforce across the Middle East and North Africa; in Egypt specifically, where 73 percent of adults are unbanked, 65 percent are unemployed or out of the workforce.

The unbanked are also more likely to live in rural areas.<sup>4</sup> In Sub-Saharan Africa, for instance, rural residents represent 62 percent of unbanked adults. In Tanzania, 71 percent of the country’s unbanked live in rural areas; in Uganda and Zambia, 70 percent and 67 percent of the unbanked do.

Low educational attainment, which the Global Findex defines as having a primary education or less, is also associated with unbanked status, in that globally, 64 percent of unbanked adults have low education. That share varies by region and economy. In Sub-Saharan Africa, for example, 74 percent of the unbanked have low education. That share is even higher in Mozambique, where 90 percent of unbanked adults have low education; in Côte d’Ivoire, where 83 percent do; and in Tanzania, where 88 percent of the unbanked have low education. In Kenya, where 79 percent of adults have an account, 62 percent of unbanked adults have a primary education or less.

> 4 The account ownership averages based on rural residence are available only for 54 countries in which the Global Findex survey was conducted face-to-face in 2021. Therefore, rural residence is not included in the regression estimation. However, all results are robust for this smaller sample of countries.

12
Multivariate regression results with country fixed effects reported in Table 2, columns 1-2, for the sample of developing countries confirm these findings.<sup>5</sup> They show that unbanked adults in these countries are significantly more likely to belong to typically underserved groups, such as women, poor adults, less educated adults, and young adults.<sup>6</sup> They also show that women with less formal education are significantly more likely to be unbanked.

> 5 The regression results remain robust when using logit instead of ordinary least squares. Furthermore, the regressions in Table 2 exclude China due to missing data on employment status, but the results are robust if we exclude employment status as a determinant of being unbanked.

> 6 This regression is consistent with an analysis of 2011 Global Findex data in Allen, et al., 2016.

13
**Table 2: Multivariate analysis—Individual characteristics of the unbanked, 2021**

||(1)|(2)|(3)|(4)|
|---|---|---|---|---|
||||**Unba**|**nked: **|
||**Unba**|**nked**|**Would not be**<br>**account w**|**able to use an**<br>**ithout help**|
|Female|0.031***<br>[0.004]|0.022***<br>[0.005]|0.069***<br>[0.007]|0.062***<br>[0.010]|
|Poorest 40% of within-country household<br>income distribution|0.085***<br>[0.004]|0.085***<br>[0.004]|0.052***<br>[0.007]|0.052***<br>[0.007]|
|Age (years)|-0.010***<br>[0.001]|-0.010***<br>[0.001]|-0.004***<br>[0.001]|-0.004***<br>[0.001]|
|Age (years), squared|0.000***<br>[0.000]|0.000***<br>[0.000]|0.000***<br>[0.000]|0.000***<br>[0.000]|
|Primary education only|0.182***<br>[0.005]|0.171***<br>[0.007]|0.142***<br>[0.008]|0.137***<br>[0.011]|
|Household size (log)|-0.006<br>[0.004]|-0.006<br>[0.004]|-0.015**<br>[0.007]|-0.015**<br>[0.007]|
|Unemployed|0.141***<br>[0.008]|0.142***<br>[0.008]|-0.047***<br>[0.015]|-0.047***<br>[0.015]|
|Out-of-workforce|0.184***<br>[0.006]|0.184***<br>[0.006]|0.070***<br>[0.011]|0.070***<br>[0.011]|
|Self-employed|0.099***<br>[0.006]|0.099***<br>[0.006]|-0.002<br>[0.011]|-0.002<br>[0.011]|
|_Interaction term_: Female * Primary<br>education||0.021**<br>[0.008]||0.01<br>[0.013]|
|Constant|0.802***<br>[0.020]|0.806***<br>[0.020]|0.502***<br>[0.034]|0.505***<br>[0.035]|
|R-squared|0.264|0.264|0.143|0.143|
|F-stat|322.5|318.9|47.66|47.16|
|p-value of F-stat|0|0|0|0|
|Number of individuals (observations)|81,106|adults|30,847|adults|
|Number of countries|79 cou|ntries|79 co|untries|

Note: All regressions use individual-level data for adults in 79 low- and middle--income countries and are estimated using ordinary least squares with robust standard errors. Summary statistics are shown in Table 1. The dependent variable in Columns 1-2 is equal to 1 if the respondent does not have an account at a financial institution or with a mobile money service (and equal to 0 otherwise). The dependent variable in Columns 3-4 is equal to 1 if the respondent is unbanked and predicts they would be unable to use an account at a financial institution without help. All regressions include country fixed effects. Omitted variables include males, adults belonging to richest 60 percent of households, adults with secondary education or above, and adults employed for wage. Standard errors in parentheses. *, **, and *** indicate significance at 10%, 5%, and 1% respectively.

14
# **5. Why unbanked adults do not have an account**

To understand why the unbanked do not have an account, the Global Findex 2021 survey asked the unbanked directly why they did not have an account. Specifically, globally, unbanked adults are asked why they do not have an account at a financial institution (excluding mobile money).<sup>7</sup> Moreover, in Sub-Saharan African countries, where mobile money accounts are widespread, the survey also asks the unbanked why they do not have a mobile money account.

# **_5.1_ Reasons for not having a financial institution account**

“Lack of money” was, unsurprisingly, the most common answer given by 62 percent of unbanked adults for not having a financial institution account (excluding mobile money). However, only 12 percent said that not having enough money was their only reason for not having an account (Figure 3). Respondents were allowed to offer multiple reasons, and, on average, most gave two. These findings suggest that if, for example, the costs of opening and maintaining an account or a minimum balance requirement were reduced, adults might be able to have an account.

The second most common answer, given by 36 percent of unbanked adults worldwide, is that financial services are too expensive. High costs have an even larger impact in Latin America and the Caribbean, where 60 percent of unbanked adults say that costs keep them from having an account. This is a region with less bank competition, greater bank concentration, and higher bank overhead cost-to-total assets ratios, which are associated with higher costs for banking services

> 7 This question is limited to barriers to account ownership at a bank or similar financial institution (excluding mobile money) since worldwide, 76 percent of adults reported having any account in 2021, including 74 percent who reported having an account at a bank or similar institution.

15
<!-- Start of picture text --> too expensive<br>Financial services are too far<br>Lack of necessary documentation<br>Religious reasons |<br>111!1<br>020 AO 60 80<br>MW Cited assole reason [J Cited with other reasons<br><!-- End of picture text -->
one—all of these countries also have gender gaps in account ownership. Bridging the gender gap in financial literacy might encourage more women to manage their own account (Hasler and Lusardi 2017).

Documentation also hampers account ownership according to the 27 percent of unbanked adults who said they did not have the formal identification or documentation needed to open an account. Greater access to national identification might require governments to simplify the process to apply, as well as educating adults how to apply for identification for themselves and their children. Interestingly, in developing countries, of the 27 percent of unbanked adults who report that identification is a barrier, 70 percent of them report having national identification. Improving access to identification is often not enough to increase account ownership because national identification does not always satisfy additional bank requirements when opening an account, sometimes beyond regulatory know-your-customer (KYC) requirements. For example, customers often need to show local documentation as well—such as a utility bill with a home address—and this may be difficult to produce.

Distrust of the financial system plays a role for 23 percent of unbanked adults. In Europe and Central Asia and in Latin America and the Caribbean, about a third of unbanked adults cited distrust of the banking system as a reason for not having an account. This appears to both reflect legacies of bank appropriations (such as in the former Soviet Union), as well as the relatively high banking costs found in Latin American countries (Gershenson, et al., 2021). This points to the importance of educating and informing consumers on interest rates and how to efficiently use formal financial services in order to build trust, and greater usage, of bank products.

Finally, 10 percent of unbanked adults globally cited religion as a barrier. In the Middle East and North Africa, where adults might prefer Sharia-compliant banking services, religion is more 17
frequently cited as a barrier. For example, 24 percent and 19 percent of the unbanked in Iraq and Morocco, respectively, cited religion as a barrier. There are also gender differences in citing religion as a barrier to account ownership. For example, in Morocco, 14 percent of unbanked men compared to 23 percent of unbanked women cite religion as a barrier. Sharia-compliant savings and credit products can help address this barrier (Karlan et al. 2021). However, prices on Sharia-compliant products are typically more expensive (Hussain et al. 2016), stressing the importance that users understand the often more complicated terms and fees.

# **_5.2 Lack of access to technology is a leading barrier to using a mobile money account_**

Account ownership has increased in certain countries due to the adoption of digital technologies, including mobile phones. Since 2014, Sub-Saharan Africa has been the global leader in mobile money account ownership. As of 2021, 33 percent of adults reported having a mobile money account in the region, compared with only 10 percent of adults globally. In this way, mobile money has played a foundational role in driving increased account ownership in Sub-Saharan Africa.

Given such high mobile money adoption in Sub-Saharan Africa, the Global Findex 2021 survey included a dedicated module that asked unbanked adults in that region (i.e., adults with neither a mobile money account nor an account at a traditional financial institution, like a bank) specifically why they did not have a mobile money account. As with the general set of questions about financial institution accounts, respondents could give more than one reason for not having a mobile money account, though most gave fewer than two.

18
<!-- Start of picture text --> Lack of necessary documentation BE<br>Mobileare money too expensive accounts |<br>Mobile money agents are too far hs<br>Use an agent or someone I |<br>else to make payments ! \ \ \ \<br>0 20 40 60 80<br><!-- End of picture text -->

Ml Cited as sole reason __ [il Cited with other reasons
<!-- Start of picture text --> Developing economies [IIs<br>Egypt, Arab Rep. [es<br>india<br>LaoPOR [ee<br>Lebanon (es<br>Pakistan (.....s<br>South Sudan (ls<br>Tajikistan (es<br>0 20 40 60 80 100<br><!-- End of picture text -->
The multivariate regression results with country fixed effects in Table 2, Columns 3-4, confirm this finding and show that unbanked adults are significantly less likely to be able to use an account if they belong to typically underserved groups, such as women, poor adults, less educated adults, and adults out of the workforce.

# **6. Explaining why account owners do not use their accounts**

Having an account is only the first step towards achieving the benefits of access to formal financial services. More important is how people use their account. There are about 430 million people in developing countries (including 280 million in India), representing about 13 percent of banked adults, who have an account but do not use it—these are the financially inactive consumers, sometimes referred to as the ‘ _underbanked’_ . Inactive account holders at banks and similar financial institutions are concentrated in one country—India—where 35 percent of accounts were inactive in 2021. India’s share of inactive accounts coupled with its large population has the statistical effect of pushing the overall developing economy average of inactive accounts to 13 percent of account holders. Yet, when we examine the inactive account data for India separately from the rest of the world’s developing countries, the average developing economy inactive account rate decreases sharply to 5 percent, making India’s inactive account share about seven times larger than the developing economy average. For this reason, additional data was collected _only_ in India on the reason for account inactivity.

We also examine why adults in Sub-Saharan Africa do not use a mobile money account on their own, without help from an agent, family member, or friend. Previous research has shown that adults that transact through their account without the help of a mobile money agent can sidestep illicit extra charges. For example, in Ghana, consumers are overcharged in 1 out of 4 mobile money transactions, with female customers more likely to face misconduct (Annan 2022b).

21
# **_6.1 The case of India_**

As mentioned earlier, in India, 35 percent of account holders report not using their account at a bank or similar financial institution for a single deposit, withdrawal, or digital payment in the past year. One potential contributing reason for India’s share of account inactivity may be the large number of accounts that were opened as part of the Indian government’s Jan Dhan Yojana program, which offered no-minimum balance, no-fee accounts to all adults with an Aadhaar biometric ID. Launched in August 2014, it brought an additional 450 million Indians into the formal banking system, most of them before the collection of the Global Findex 2017 survey data (Indian Ministry of Finance 2022). The launch and trajectory of Jan Dhan Yojana corresponds with a significant increase in inactive accounts in India.

India’s account ownership initiative is broadly viewed as a successful example of a government investing in financial access for development purposes. However, the high level of financial inactivity correlated with the program is a reminder that account ownership alone is not enough. Usage is also important.

Although there is no gender gap in account ownership in India, the gender gap in account use is high. Forty-two percent of female account holders in the country are inactive compared to 30 percent of male account holders, a 12-percentage point inactive account gender gap. In contrast, in all developing countries outside of India, women and men are equally likely to have inactive accounts. Moreover, regression results in Table 3, columns 1-2, show adults in India with inactive accounts are significantly more likely to belong to typically underserved groups, such as women, the poor, those less educated, and adults who are self-employed, unemployed or out of the labor force.

22
**Table 3: Multivariate analysis—Individual characteristics of the underbanked, 2021**

||(1)|(2)|(3)|(4)|
|---|---|---|---|---|
||**Inactive**<br>|**account**<br>|**Needs help u**<br>**money**<br>|**sing a mobile**<br>**account**<br>|
|Female|0.050*<br>[0.025]|0.149***<br>[0.035]|0.057***<br>[0.011]|0.030***<br>[0.012]|
|Poorest 40% of within-country household<br>income distribution|0.103***<br>[0.030]|0.104***<br>[0.030]|0.067***<br>[0.013]|0.066***<br>[0.013]|
|Age (years)|0.003<br>[0.004]|0.003<br>[0.004]|-0.004*<br>[0.002]|-0.004*<br>[0.002]|
|Age (years), squared|0.000<br>[0.000]|-0.000*<br>[0.000]|0.000***<br>[0.000]|0.000***<br>[0.000]|
|Primary education only|0.149***<br>[0.027]|0.210***<br>[0.033]|0.228***<br>[0.014]|0.197***<br>[0.018]|
|Household size (log)|-0.018<br>[0.032]|-0.021<br>[0.032]|0.006<br>[0.009]|0.007<br>[0.009]|
|Unemployed|0.180***<br>[0.043]|0.179***<br>[0.042]|0.018<br>[0.021]|0.018<br>[0.021]|
|Out-of-workforce|0.138***<br>[0.032]|0.137***<br>[0.032]|0.043**<br>[0.017]|0.042**<br>[0.017]|
|Self-employed|0.110***<br>[0.035]|0.108***<br>[0.035]|0.022*<br>[0.013]|0.022*<br>[0.013]|
|_Interaction term_: Female * Primary<br>education||-0.147***<br>[0.044]||0.065***<br>[0.024]|
|Constant|0.118<br>[0.085]|0.076<br>[0.086]|0.132**<br>[0.052]|0.143***<br>[0.052]|
|R-squared|0.071|0.076|0.158|0.159|
|F-stat|14.06|15.48|35.5|34.53|
|p-value of F-stat|0|0|0|0|
|Number of observations<br>Country(s)|2,368<br>In|adults<br>dia|10,38<br>25 cou<br>Sub-Saha|3 adults<br>ntries in<br>ran Africa|

Note: All regressions use individual-level data and are estimated using ordinary least squares with robust standard errors. Summary statistics are shown in Table 1. Columns 1-2 include 2,368 Indian adults and the dependent variable is equal to 1 if the Indian respondent has an inactive account, defined as not a single deposit, withdrawal, or digital payment within in the past year. Columns 3-4 include 10,383 adults in 25 Sub-Saharan African countries who use a mobile money account, and report needing help using it (e.g. from an agent, family, or friend). All regressions include country fixed effects. Omitted variables include males, adults belonging to richest 60 percent of households, adults with secondary education or above, and adults employed for wage. Standard errors in parentheses. *, **, and *** indicate significance at 10%, 5%, and 1% respectively.

23
<!-- Start of picture text --> Financialare tooinstitutionsfar away |]<br>Lack of trust [|<br>No need |<br>Not enough money oe<br>Not comfortable using<br>an account by themselves<br>! ' ! i] 1 ! 1<br>0 10 20 30 40 50 60<br>I) Cited as sole reason Cited with other reasons<br><!-- End of picture text -->
mention their comfort level, and instead were asked separately whether they could use an account by themselves). Specifically, about 30 percent of inactive account holders do not use their account because they do not feel comfortable doing so by themselves. More men with an inactive account (34 percent) than women with an inactive account (26 percent) say they do not feel comfortable using it by themselves, perhaps because men typically make larger or more complex transactions. There was no income or educational attainment gap for inactive account holders who gave this reason.

# **_6.2 The case of Sub-Saharan Africa_**

The Global Findex 2021 survey also asks mobile money account owners in Sub-Saharan Africa if they are able to use their mobile money account without help. Across Sub-Saharan Africa, one in three (31 percent) mobile money account holders cannot use their account without help (Figure 7). In countries such as Liberia, Malawi, and South Africa, this share is much higher, with more than 50 percent of mobile money users needing help using their account.

Among mobile money account holders, women, the poor, the less educated, the young and those outside the labor market are more likely to need assistance, making them at potentially higher risk of financial abuse from agents or family members.

Gender differences are relevant: female mobile money account holders are 5 percentage points more likely than men to need assistance. In many countries, like Ghana, Liberia, Malawi, and Senegal, this share is much higher, at more than 10 percentage points. On the other hand, in countries like Benin, Cameroon, Côte d’Ivoire and Nigeria, male and female mobile money account holders are equally likely to need help.

25
Poorer mobile money account holders are 10 percentage points more likely than the rich to need assistance. In some countries, the share is much higher – about 20 percentage points in Burkina Faso, Ghana, and Mali to 30 percentage points in Zambia. In countries like Cameroon, Côte d’Ivoire and South Africa, poor and rich mobile money account holders are equally likely to need help.

The less educated mobile money account holders (defined as those with a primary education or less) are 22 percentage points more likely than the more educated to need help. Of mobile money account holders, those outside the labor market are 5 percentage points more likely than those in the labor market to need help. Interestingly, younger mobile money account holders are 8 percentage points more likely than older account holders to need help; even though younger adults might be more familiar with the use of technology, they also use a wider array of digital payment products.

These findings are confirmed in multivariate regressions. As reported in Table 3, columns 3-4, with country-fixed effects, adults in the region who need help using a mobile money account are significantly more likely to belong to underserved groups like women, the poor, those less educated, out of labor force or self-employed. Younger adults are also significantly more likely than their older counterparts to need assistance.

26
806040,ae LI an fo]a < a. =o 8 oO o c ivi 8 iva c © % © 2 s : © a= c s g § 2 § ¢ 5 § & £€ &€ § & @ @ @ $ © § 8 EE 2 B i) &x =& ag 2 Oo© [)= o3 xog aS2 =© = oN 3o 3© s5 fac Ee 5Do No 2E a °° & 6 = B N i Can use mobile money account without help Have a mobile money account but cannot useit without help
As the financial industry increasingly offers digital financial services, a new population of financial customers is entering the formal financial system. These consumers may need more, and better information in order to fully understand product features and fees. Financial regulators and supervisors can take the lead to help identify information gaps in the marketing and provision of financial services, requiring that financial institutions provide customers with complete and clear information about their products. One possible remediation approach might be to establish clear guidelines for financial institutions about disclosures and transparency, as well as sound enforcement practices to ensure compliance. Behavioral insights can also help financial institutions communicate more effectively with customers, provide clear and complete information about costs, highlight salient details, and ensure that customers understand the benefits and risks of financial products and services.

Though regulators and financial institutions each have important roles to play, consumers can and should be given opportunities to protect themselves through information and education. Public service programs should also inform and educate consumers about the risks of predatory financial practices and what they look like. Financial service providers and regulators should offer this information in plain language and in a format that all users can understand—including consumers with less financial experience and lower education levels.

Investments in digital and financial education are critical to ensure that financially inexperienced users benefit from account ownership and understand how to use financial services in a way that optimizes benefits and avoids risks such as high and hidden fees, over-indebtedness, fraud, and discrimination.

28