Concept Note: Dimensions of Financial Inclusion Indicators The promotion of Financial Inclusion requires the observation of other dimensions

rather than the mere availability of infrastructure (or distribution channels such as branches, ATM, POS etc) to provide financial services. As already addressed by FIDWG, other barriers rather than the access to financial services might exist1, limiting expansion of financial services to a broader base of users. To deal with this issue, it is important to design indicators to measure the quality or the level of adequacy to the needs of the users of those services. In our view, the use of financial services should also be sustainable, increasing the welfare of the users, helping individuals and firms to smooth income, to insure against risks, and to broaden investment opportunities. In this sense, financial education and consumer protection are processes that must happen, if not earlier, in parallel with initiatives to promote financial inclusion, in order to enable multiple users to understand and acquire financial services that meet their needs. In a broader perspective, sustainability also requires that efforts to promote financial inclusion preserve the advances achieved in other areas, such as the stability of the financial system, the actions to combat money laundering, terrorist financing and the environment preserving. Some countries have assumed the promotion of the Financial Inclusion of the population as a strategic objective, committing itself not only to extend the number of distribution channels to boost financial services to the population - allowing the entry of new users-, but also to foster services supply tailored to the needs of the users, monitoring its sustainability as well. In order to understand the current stage of financial inclusion of the population and to monitor its progresses and barriers in different dimensions, several indicators should be created. They are divided according to their purposes into three main groups: Access, Use and Quality. Indicators of Access are used to assess how branches, ATMS and other channels are distributed to the population, which allows a picture of the number of channels available and their distribution in relation to population size and area of a given locality. These indicators are intended to diagnose the locations where access to financial services is deficient, and make possible comparison of the number of access channels in different locations and the identification of locations with insufficient infrastructure. Indicators of Use allow to monitor the evolution of the use of the main financial services loans, deposits, payments, remittances, etc , vis--vis the demand by different social groups in society. These indicators should not only allow comparisons both by geographic and social criteria, discriminating usage patterns for financial services between locations and user's income, but also measure progress of actions taken to promote financial inclusion. Moreover, these indicators also provide a preliminary guidance regarding the existence of other barriers to financial inclusion, when access is available and its use is below expectations.

Kempson et al. 2000 distinguish between five types of exclusion to financial services: (i) access exclusion: e.g. through risk screening; (ii) condition exclusion: product design inappropriate for the needs of some people; (iii) price exclusion: financial products too costly; (iv) marketing exclusion: with some people effectively excluded by targeting marketing and sales; (v) self-exclusion: some persons not applying in the belief that they would be refused.

Finally, indicators of Quality are designed to both complement the analysis related to identification of other barriers to financial inclusion when access to services is available, and also verify the sustainability of the use of financial services. To achieve this goal, indicators of Quality are targeted to monitor: the convenience of services, the level of security of users, consumer protection issues, financial education and choice2. Under the sub-dimension convenience, the indicators should measure the extent to which financial services are made available to users, considering their characteristics. The existence of implicit barriers to financial services, such as the high cost of service, the waiting time in queues, the requirement of criteria to admission, such as documentation, minimum wage etc, not easily available to all potential customers suitability and complexity3 of services can mitigate or prevent the expansion of usage to a larger client base. Security of financial operations (or, alternatively, as we may define, the client security) encompasses not only issues related to the possibility of losses by transaction or registration errors due to poor infrastructure or fraud, but also the stability of the financial institution, the continuity of services in the locality and the access to safety net, such as deposit insurance. Financial services targeted to low-income segment can be offered by informal institutions or outsourced firms, out of the scope of prudential regulation and with no expertise in banking operations, increasing client risk. Moreover, if the financial services are supplied by banking correspondent, the discontinuity is also possible if the financial institution ends the contract with the outsourcing firms. In this case, the client resources may become unavailable due to lack of access to financial institution. The consumer protection scope should embrace both preventive and corrective measures. By preventive measure, users of the financial system should have access to accurate financial information, clearly and transparently available, thus enabling decision-making with full knowledge of their rights and obligations. Corrective measures, on the other hand, focus on conflict solution between clients and institution. In this case, accessible channels to clients must be provided to resolve any problems in their relationship with financial institutions. Furthermore, due to the lack of financial education, the existence of information asymmetry regarding the use of financial services and the uncertainty over the budget of low-income people, it is also necessary to monitor the level of indebtedness of users in order to evaluate whether access to credit is sustainable, increasing welfare of its users. Increasing access to the variety of financial services credit, savings, investment, insurance and pension and increasing number of institutions benefit consumers, allowing them the choice of a large range of services. However, consumer decision gets more complex as they need to compare both upside and downside of each option to make conscious choices. Even among very similar products, there may be significant differences in cost, risk, profitability, and deadlines. Thus, not only access to information is necessary, but also the development of the user skills to understand the characteristics, risks and opportunities involved in every decision. Financial education has potential to show the public about the importance of financial planning, in order to develop a balanced relationship with money, to encourage savings and to make adequate decisions about finance. That means not only financial literacy is essential, but,

Elisabeth Rhyne presented nine dimensions: convenience; product fit and flexibility; safety and reliability; affordability; respectful treatment; client protection; financial literacy; choice; accompanying services. 3 The complexity of services address issues such as contractual complexity, hindering the understanding of the obligations and risks of services.

in most cases, financial capability is an important tool as well, in order to provide money management knowledge and skills. Choice is also an important dimension so customers have not only the opportunity to select the better combination of price, quality of services and treatment that suits better their expectation, but also reduces the risk of the discontinuity of services in their locality. In summary, we understand that the following dimensions should be considered to measure Quality of financial services: Dimension Convenience Scope Cost of services; Waiting time in queues; Complexity of services; Opening hours ; Product fit Possibility of transaction or registration errors; Stability of the financial institution; Continuity of services in the locality; Access to safety net Preventive actions; Corrective actions; Complaints resolution; Level of indebtedness of consumers Level of financial literacy of users; Level of financial capability of users Level of competition

Client security

Consumer protection

Financial literacy Choice