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From Crisis to Resilience: The Role of Inclusive Finance in Fragile Countries

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This working paper scrutinizes the pivotal role that financial services play in aiding development in fragile countries, which significantly lag behind their more stable peers in poverty reduction and financial inclusion. By 2030, projections indicate that a substantial portion of the world’s poorest populations will live in these fragile regions. These countries encounter unique challenges, such as lower financial and digital literacy, higher risk aversion, and reduced investment, severely affecting women who often lose livelihoods and education during crises. As a result, fragile states are widening the gap with non-fragile states, jeopardizing global development goals.

Aimed at development and humanitarian funders, the paper provides insights on enhancing financial services to better support development outcomes in high-risk areas. It pinpoints several challenges: customers often access limited services at higher costs, providers face decreasing revenues and increasing costs and risks, and public sectors grapple with limited capacity and immediate demands that detract from long-term planning. To address these issues, the paper suggests strategic interventions: leveraging humanitarian cash transfers, harnessing the role of informal financial services, and enhancing market facilitation for the financial sector. Over the coming years, CGAP aims to bolster advocacy and offer technical support to utilize inclusive finance for improving resilience and fostering development in fragile states.

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