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Demand-side Perspectives

The Problem:

While financial inclusion is becoming increasingly important within the development arena, there remains a distinct lack of knowledge about the needs of the poor – For example: What products work best with their cash flow patterns and needs?  Even when financial options are available, why do poor people continue to not use them?  What product features have a better chance of promoting increased usage?  Can the lack of interest in formal options be corrected through targeted financial literacy programs that aim to promote long-term behavior change? 

The Solution:

While data is available about the institutions which provide services, there remains a dearth of rigorous and reliable data gathered directly from those who have traditionally been excluded from the formal financial sector, which can lead to answers (rather than assumptions) to the questions above.  Demand side studies which seek to gather such information from the actual or target clients  – the poor and/or unbanked population – provide key inputs for both the development of policy as well as strategic initiatives to increase meaningful participation of the poor.  Without studies of this kind, solutions risk being irrelevant or worse, damaging to the progress has already achieved.  For example, if banks invest in a product and/or channel for the poor that is not regularly used, they may be dissuaded from pursuing this demographic further, thereby undermining the promotional work that has succeeded in developing mainstream interest in serving the poor.  

Technically speaking, there are a multitude of methodologies that one can undertake to cultivate knowledge about the target population, which can then be further modified according to the needs and context of the study, as well as the resources available. The table below provides a high-level summary of three ways in which demand-side data can be most reliably collected.

Type of survey	Definition	Survey Objective
One time cross -section	Cross section of the population is randomly selected and interviewed once	Provide a snapshot of current level of financial access
Repeated cross section	Cross section of the population is randomly selected and interviewed once.  Subsequently another cross section of the population (which resembles the first sample in terms of population characteristics) is randomly selected and interviewed once.	Monitor progress of financial access across time.
Panel	The same households/individuals are interviewed multiple times at regular intervals.	Indicate a causal impact of changes in policy if combined with other factors.

 

Possible questions that can be asked:

1) What are the main factors which hinder financial access?

Supply-side data from financial service providers can be used to estimate how much access a target population has to financial services.  For example, information about physical outreach, specifically the number of branches, ATMs, etc., can be combined with population data, and used as a proxy for financial access.  Additionally, financial services providers can be asked about product information, fees or other potential supply-side barriers to financial inclusion.  However, understanding which, if any, factors play the primary role in dissuading or preventing poor clients from effectively using formal financial services requires data collection directly from the people who the program is trying to reach.  Rigorous demand-side studies have the advantage of collecting either qualitative or quantitative data which can provide, at the least, a more nuanced perspective of the level of actual access to financial services.

2) How do poor people use financial services? What are their primary needs?

In addition to ascertaining the level of usage, it is critical to analyze how the services and products are being used: for what occasion and how frequently.  Poor households face different challenges throughout a single year and over time; Designing the best products to suit their needs therefore requires asking not only what is being used, but also how financial services are being used. Additionally, suppliers can benefit from understanding where and how to invest in product development to achieve the financial returns they need to sustain the service at a price affordable to the target clientele.     

3) What are the most relevant consumer protection measures?  How effective are they?

As exemplified by recent events in the US, unbridled growth of a financial sector may lead to detrimental results for consumers. It became clear, for example, how imperative it is that consumers sufficiently understand the terms and conditions of available financial products – not only to make informed choices among them, but so also to fully comprehend any additional fees or penalties and the events that trigger them. 

The consequences of uninformed decisions are even more acute for those without financial excesses to smooth unintended expenditures or who are unable to sustainably finance their way out of debt. Similarly, it remains unclear whether new channels, such as agent or mobile banking, coming on stream in an effort to reach to most poor and remote in many countries, pose new risks for consumers.  Demand-side studies, aimed at understanding the consumer perspective, not only can help assess the status quo, but also provide essential input to increase the efficacy of protection-oriented policies.