Global technology company Mastercard is committed to financial inclusion. In addition to supporting Accion, it has developed over 200 financial inclusion programs in 40 countries, reaching 350 million underserved people. Given Mastercard’s extensive work promoting financial inclusion, Mastercard Mexico recently designed a framework to establish key performance indicators and baselines to assess how inclusive finance is helping people build better lives.
How do you measure financial inclusion?
With a team of researchers from Columbia University, MasterCard established a set of key performance indicators (KPIs) that they could use as a framework to assess financial inclusion data. These guidelines will not only help Mastercard assess their own impact, but they will also provide other financial inclusion organizations with the framework they need to assess their own.
Mastercard’s KPIs try to answer two questions:
- Are financial products being accessed and used?
- Are the previously underserved able to improve their well-being once they have access to and utilization of financial services?
The first question can be easily addressed by looking at banking institutions’ financial inclusion data. However, the second question is much harder to tackle because of the lack of adequate data to measure well-being and the difficulty behind determining what “well-being” actually means.
Mastercard’s framework can help program officers answer the first question by focusing on two dimensions, access and usage, in relation to four financial products (transactions, savings, credit, and insurance).
Accion recognizes the importance of measuring the performance of financial services. We believe that while access is important, usage is a more meaningful way to assess the impact of financial services on people’s lives.
Mastercard then determined KPIs that would measure access or usage for any of the four products. For example, in order to determine access to transactions, Mastercard will measure the number of bank accounts opened. To determine usage of credit, Mastercard will use the average loan amount per person. For access to insurance, they will track the number of insurance policies approved.
See the table below for a detail of all the access and usage KPIs:
By measuring performance against these KPIs, Mastercard and other inclusive finance providers can determine whether clients are accessing and using financial products.
The well-being dilemma
Creating a framework to determine whether the previously underserved improved their well-being once they had access was more complicated. It’s difficult to assign a value to well-being or to measure it definitively. It’s also nearly impossible to create a counterfactual – to say what would have happened to these new customers had they continued to live without financial services.
Instead, Mastercard used prior studies that investigated the impact of financial inclusion to create a framework to assess whether inclusive finance affected well-being. These previous studies identified six desired outcomes that indicated how inclusive finance could improve someone’s life:
- Higher household consumption
- Increased household wealth
- Better education for children
- Women’s empowerment
- Healthier people
- Safer Societies
Mastercard then created adequate, quantifiable KPIs to measure whether its programs were indeed pushing a community closer to any of these six desired outcomes. For instance, to calculate household wealth, they will look into total household assets. To examine levels of safety, they will measure the number of robberies. For education, they will use the number of days of school attended. Below is a detailed list of all the KPIs they used for quantifying well-being:
There’s a variety of assumptions at work here — that the KPIs adequately indicate progress against the six outcomes, or that the six outcomes themselves reflect increased well-being. It’s also important to underscore that correlation is not causation, so we can’t say that a given financial inclusion program ‘caused’ increased household wealth or safer societies without rigorous research.
That said, Mastercard’s attempt to quantify well-being at least provides some framework for inclusive finance providers to assess their work and articulate the difference that they’re making in peoples’ lives.
Currently, Mastercard is focused on creating new partnerships with local governments to enable digital money transfers to beneficiaries of government programs. By using this framework of standard measurements and metrics, Mastercard and its partners will better understand the impact of their programs. The framework may set the standard for future financial inclusion initiatives that will require rigorous analysis. Consequently, the quality of financial products for the underserved may increase as organizations gain a better understanding of financial products’ impact and find ways to improve them.
For instance, a microfinance institution in Mexico is currently implementing the suggested evaluation model and KPI’s in a pilot program. Mastercard considers the Mexico pilot to be a critical step toward making Mastercard’s global commitment to full financial inclusion a reality. The pilot is specifically designed to reduce the number of consumers and businesses outside of formal financial systems, a critical need in Mexico. Participants will be given access to many aspects of the formal economy for the first time, including credit and debit cards, mobile payments, point of sale services, and real-time invoicing. Mastercard will be evaluating the outcomes and the impact of the pilot, analyzing key data such as card access and use, as well as targeted external social, market, and economic impact indicators, to assess the sustainability of the program going forward.
Ultimately, all of this work will help to create a more financially inclusive world. Thoughtful research with adequate metrics leads to effective action and wise use of capital, and that’s good for both clients and financial intuitions. Clients benefit by using financial products that have been proven to work. Financial institution benefit by saving resources and maximizing gains. Through these initiatives, Mastercard is leading the way to effectively advance Financial Inclusion in a way that’s valuable for everyone involved. Accion supports this initiative, as we understand the broad impact new digital financial services will have. We are interested in learning more about performance measurement from experienced organizations like Mastercard.