Financial inclusion and financial integrity : aligned incentives?

A large percentage of the population in developing countries saves, remits money or accesses credit using informal financial services. Financial inclusion initiatives aim to expand the reach and attractiveness of formal financial services. Recently, the Financial Action Task Force embraced financial inclusion as complementary to anti-money laundering and counter-terrorist financing as it enhances financial transparency. Analyzing preliminary data from FinScope surveys on eight African countries we argue that an increase in access to formal services does not automatically imply an immediate and corresponding reduction of usage of informal services, especially as many individuals use informal and formal services in parallel. We consider customer trade-offs regarding the use of formal and informal services especially considering transparency as a potential disincentive to use formal services. The alignment of financial inclusion and integrity will fail where customers are apprehensive about increased transparency.<br /

Financial inclusion and financial integrity: aligned incentives?

The Financial Action Task Force embraces financial inclusion as complementary to anti-money laundering and counterterrorist financing, as it enhances transparency. This support is based on the premise that the increased use of formal financial services leads to a reduction of usage of informal services. We present evidence on eight African countries that both are not negatively associated. Moreover, informal employment and cash preference reduce the inclination to use mobile financial services. If an increase in transparency acts as disincentive to use formal services, the alignment of financial inclusion and integrity will fail