Money and/or financial services typically serve four functions:
These four (transfer of value liquidity, resilience and meeting goals) are universal functional needs for financial services. Each need is the combination of a number of use cases. In practice, people express a specific use case (such as making grocery payments or saving for old age), which is then categorised into the corresponding need, such as “transfer of value” for grocery payments, or “meeting goals” when saving for old age.
For financial inclusion to have any impact, people must first have and then actively use financial services. Current financial inclusion indicators are effective at telling us whether people have different financial services. The FinNeeds objective is to better understand how people use different financial services and what determines their choice of financial service and usage patterns.
Our starting point is that people use financial services because it can help them to achieve some underlying financial need. If we can understand the prevalence of use cases, how people achieve their use cases and why they choose one way of meeting a use case over another, it provides us with a new perspective on what the role of the financial sector is in serving needs. It could also reveal what the gaps are and therefore what policymakers, regulators and market players can do to ensure the formal financial sector more effectively meets financial needs.
insight2impact has developed the FinNeeds measurement framework to place financial needs at the centre of financial inclusion measurement and generate new types of financial inclusion indicators for which progress can be tracked over time to inform policy and market strategy interventions.
No, the FinNeeds approach does not replace existing financial inclusion indicators or measurement approaches. This approach provides a “needs-based lens” for viewing the core financial inclusion problem of how to increase formal financial service usage and impact.
The FinNeeds approach can be applied by analysing existing data or by gathering new data. The FinNeeds indicators complement, rather than replace, existing financial inclusion indicators.
For example, two traditional financial inclusion headline indicators are:
While the traditional indicators may show progress, the FinNeeds indicator will provide a reality check and highlights the potential role that financial services could fulfil. Let’s look at an example based on data from one of our pilot studies:
Learn how to apply the FinNeeds approach to measuring financial services usage