Robbed of opportunity: 460 million east Asians have no bank account
For as long as huge swathes of the people of east Asia are without a
bank account, economies will suffer and loan sharks will profit. But
access and a lack of trust are obstacles not easily overcome
Most of us take having a free bank account for granted, but the 460 million people across east Asia without one often turn to informal moneylenders to meet their everyday needs. Decisions requiring credit, such as expanding a business, buying a house or paying medical bills are taken out of the hands of the so-called “unbanked”. Uninsured and with no savings, they are also less resilient to health problems, unemployment or a natural disaster.
Global trends are at least positive. The proportion of people without bank accounts has fallen by a fifth since 2011, to 2 billion, according to recent World Bank figures. Even so, the world remains well short of the
bank’s target of universal access to financial services by 2020.
At a roundtable discussion in Jakarta, hosted by the Guardian in association with Visa, against the backdrop of the World Economic Forum on east Asia, a panel of experts agreed that more collaboration was needed to achieve full financial inclusion in the region. The discussion was held under the Chatham House rule, whereby comments are not attributed to encourage a free and frank discussion.
The financial disenfranchisement of large numbers of the world’s poorest people is a serious issue. As one participant said: “Financial inclusion is a right. We believe a lot more can be done through a more effective collaboration between traditional and non-traditional stakeholders.”
He highlighted the need for networks of organisations, already focused on financial access in the region, to work together. In this way, the beginnings of an ecosystem could be built in which different stakeholders – NGOs, governments, banks, mobile operators and private-sector companies – can jointly concentrate on common goals. This would then propel the usage, scale and sustainability of financial products targeted at low-income groups.
But what are the costs of financial exclusion in Asia?
One participant said financial exclusion is costly for the farmers she represents, because they don’t have access to credit, yet they require capital for production inputs, machinery, health costs and so forth: “Many farmers are not even in the social security system, so when we need cash we often go to middle men – and the interest can be high.”
A participant noted that financial exclusion “robs folks of the opportunity to be resilient”. He added: “All it takes is a tsunami or two years of hunger, and you no longer have that opportunity to create your own future.”
Another contributor raised the point about why governments should drive efforts to achieve full financial inclusion: “We need to get governments to care about the unbanked – not just because of the general social implications of poverty but also because it puts a brake on your economic growth if 25% of your population is not able to contribute.”
But can giving someone a bank account pull people out of poverty? One participant gave the example of India, where 85 million of the 147 million bank accounts opened since August 2014 are dormant. We need to move away from the sector’s obsession with the number of bank accounts opened to looking at usage, he argued. This means changing how success is measured.
This brought up the tricky issue of the unbanked being seen as a potential source of revenue for financial service providers. A contributor from a banking background said that banks all too often avoid poor communities because they see them as low-profit. “Low-income people are entrepreneurs too,” he stressed, noting the valuable economic contribution they make in their communities.
There was consensus on one key point: that striking the right balance between the social impact and commercial intent of financial inclusion programmes can be tricky. This reintroduced the theme of collaboration. A contributor gave the example of partnering with a mobile bank following south-east Asia’s typhoon Haiyan in 2013. Together, the two parties provided immediate cash transfers and followed up by looking at savings products that would be most helpful to prepare people for another disaster.
This met their organisation’s objective of assisting the typhoon’s victims, while delivering on the bank’s desire to assist the affected communities and expanding their mobile banking services into rural areas. “The cash transfers helped people start rebuilding, but the way that it was done also brought 26,000 people into the formal financial system,” she explained.
As well as savings, insurance was cited as another mechanism for providing financial resilience. However, the gap between the insured and uninsured is widening, one participant noted. He argued that insurance products must become more cost-effective, adding: “We can bring down the cost of distribution by partnering with companies and NGOs that can access consumers and with whom we can work to package insurance into their products.”
But participants were undecided over how much of a significant role mobile money can play in east Asia. Although Indonesia sells more SIM cards than it has people, Indonesia remains a cash economy. One participant argued that Indonesia lacks the conditions to support mobile banking. The main problem is cash, he argued, which remains easy to come by because the state bears many of the costs of a cash economy. Kenya, widely touted as a leader in the mobile money market, is altogether different. Why? “Because cash is much harder to get and very risky,” he said.
Converting people to digital is about trust just as much as convenience, suggested one participant, whose company operates a pre-paid card project in Pakistan. “People typically start off by sending 10% of their salary to a relative in another part of the country and then calling them immediately to check that they’ve received it,” he said. If people’s initial experience of mobile money is positive, they are more likely to trust it in the future, he argued.
Lack of trust can be a huge barrier to financial inclusion. In Burma, for example, a legacy of bank runs has wiped out millions of people’s savings. Today, even optimistic assessments suggest less than one-fifth of the Burmese population has a bank account. One contributor said best practice should be where financial products and accompanying financial education for poor communities “promote social justice”. This way consumers are left feeling they’ve been treated equally and not exploited.
Lastly, participants debated the steps policymakers, NGOs and the finance and telecoms sectors could make to achieve full financial inclusion in east Asia by 2020. Many participants highlighted the role of governments, especially via the digital distribution of social welfare payments. Yet as financial services regulators, governments can present huge obstacles. Above all, it was felt a consistent approach was needed to solve common problems across the region, such as access to financial services in rural areas. That said, the temptation to propose generic solutions to specific challenges should be avoided.
One speaker pointed to the potential role of the Association of Southeast Asian Nations bloc in harmonising regulations, approaches and oversight. “Right now there’s a benefit to letting 1,000 thoughts bloom for innovation, but not if we have 1,000 different approaches,” he said.
Enabling interoperability would mean that a customer could send money from one mobile service provider to a friend on another, and cash in and cash out money from another provider’s banking agents, making digitising financial access easier.
But getting competing mobile operators to work together at all is challenging, said one participant, who had a tough time convincing 12 competing mobile banks in Cambodia to “unite all telecoms companies under one common switch”.
Engaging civil society as distributors and educators will be also be key to accelerating access in east Asia, according to one participant. However, another speaker warned against a “light touch, low cost” approach to financial literacy, saying the message does not always translate in real terms: “We should, though, leverage existing community groups. We provided a platform for farmers to share agricultural knowledge; financial services is just one part of that.”
Although the discussion often focused on the financial sector’s relationship with consumers, one contributor urged participants not to overlook the lack of trust within the sector. “I’ve been part of negotiations between telecoms and banks and it’s hard to see any trust there. Any new financial inclusion framework must start with building trust between the different stakeholders.”
Most of us take having a free bank account for granted, but the 460 million people across east Asia without one often turn to informal moneylenders to meet their everyday needs. Decisions requiring credit, such as expanding a business, buying a house or paying medical bills are taken out of the hands of the so-called “unbanked”. Uninsured and with no savings, they are also less resilient to health problems, unemployment or a natural disaster.
Global trends are at least positive. The proportion of people without bank accounts has fallen by a fifth since 2011, to 2 billion, according to recent World Bank figures. Even so, the world remains well short of the
bank’s target of universal access to financial services by 2020.
At a roundtable discussion in Jakarta, hosted by the Guardian in association with Visa, against the backdrop of the World Economic Forum on east Asia, a panel of experts agreed that more collaboration was needed to achieve full financial inclusion in the region. The discussion was held under the Chatham House rule, whereby comments are not attributed to encourage a free and frank discussion.
The financial disenfranchisement of large numbers of the world’s poorest people is a serious issue. As one participant said: “Financial inclusion is a right. We believe a lot more can be done through a more effective collaboration between traditional and non-traditional stakeholders.”
He highlighted the need for networks of organisations, already focused on financial access in the region, to work together. In this way, the beginnings of an ecosystem could be built in which different stakeholders – NGOs, governments, banks, mobile operators and private-sector companies – can jointly concentrate on common goals. This would then propel the usage, scale and sustainability of financial products targeted at low-income groups.
But what are the costs of financial exclusion in Asia?
One participant said financial exclusion is costly for the farmers she represents, because they don’t have access to credit, yet they require capital for production inputs, machinery, health costs and so forth: “Many farmers are not even in the social security system, so when we need cash we often go to middle men – and the interest can be high.”
A participant noted that financial exclusion “robs folks of the opportunity to be resilient”. He added: “All it takes is a tsunami or two years of hunger, and you no longer have that opportunity to create your own future.”
Another contributor raised the point about why governments should drive efforts to achieve full financial inclusion: “We need to get governments to care about the unbanked – not just because of the general social implications of poverty but also because it puts a brake on your economic growth if 25% of your population is not able to contribute.”
But can giving someone a bank account pull people out of poverty? One participant gave the example of India, where 85 million of the 147 million bank accounts opened since August 2014 are dormant. We need to move away from the sector’s obsession with the number of bank accounts opened to looking at usage, he argued. This means changing how success is measured.
“The reality is a bit more complex,” he said. A small number of farmers in Indonesia have opened bank accounts. “But the transactions and the idea of financial inclusion that ideally goes with that hasn’t happened.” One attendee pushed for the need to “democratise access” to financial services, highlighting that many people pay for convenience. As such, they get exploited, paying a 9%-12% fee on remittances, when what they really need is more choice.It puts a brake on your growth if 25% of your population is not able to contribute
This brought up the tricky issue of the unbanked being seen as a potential source of revenue for financial service providers. A contributor from a banking background said that banks all too often avoid poor communities because they see them as low-profit. “Low-income people are entrepreneurs too,” he stressed, noting the valuable economic contribution they make in their communities.
There was consensus on one key point: that striking the right balance between the social impact and commercial intent of financial inclusion programmes can be tricky. This reintroduced the theme of collaboration. A contributor gave the example of partnering with a mobile bank following south-east Asia’s typhoon Haiyan in 2013. Together, the two parties provided immediate cash transfers and followed up by looking at savings products that would be most helpful to prepare people for another disaster.
This met their organisation’s objective of assisting the typhoon’s victims, while delivering on the bank’s desire to assist the affected communities and expanding their mobile banking services into rural areas. “The cash transfers helped people start rebuilding, but the way that it was done also brought 26,000 people into the formal financial system,” she explained.
As well as savings, insurance was cited as another mechanism for providing financial resilience. However, the gap between the insured and uninsured is widening, one participant noted. He argued that insurance products must become more cost-effective, adding: “We can bring down the cost of distribution by partnering with companies and NGOs that can access consumers and with whom we can work to package insurance into their products.”
But participants were undecided over how much of a significant role mobile money can play in east Asia. Although Indonesia sells more SIM cards than it has people, Indonesia remains a cash economy. One participant argued that Indonesia lacks the conditions to support mobile banking. The main problem is cash, he argued, which remains easy to come by because the state bears many of the costs of a cash economy. Kenya, widely touted as a leader in the mobile money market, is altogether different. Why? “Because cash is much harder to get and very risky,” he said.
Converting people to digital is about trust just as much as convenience, suggested one participant, whose company operates a pre-paid card project in Pakistan. “People typically start off by sending 10% of their salary to a relative in another part of the country and then calling them immediately to check that they’ve received it,” he said. If people’s initial experience of mobile money is positive, they are more likely to trust it in the future, he argued.
Lack of trust can be a huge barrier to financial inclusion. In Burma, for example, a legacy of bank runs has wiped out millions of people’s savings. Today, even optimistic assessments suggest less than one-fifth of the Burmese population has a bank account. One contributor said best practice should be where financial products and accompanying financial education for poor communities “promote social justice”. This way consumers are left feeling they’ve been treated equally and not exploited.
Lastly, participants debated the steps policymakers, NGOs and the finance and telecoms sectors could make to achieve full financial inclusion in east Asia by 2020. Many participants highlighted the role of governments, especially via the digital distribution of social welfare payments. Yet as financial services regulators, governments can present huge obstacles. Above all, it was felt a consistent approach was needed to solve common problems across the region, such as access to financial services in rural areas. That said, the temptation to propose generic solutions to specific challenges should be avoided.
One speaker pointed to the potential role of the Association of Southeast Asian Nations bloc in harmonising regulations, approaches and oversight. “Right now there’s a benefit to letting 1,000 thoughts bloom for innovation, but not if we have 1,000 different approaches,” he said.
Enabling interoperability would mean that a customer could send money from one mobile service provider to a friend on another, and cash in and cash out money from another provider’s banking agents, making digitising financial access easier.
But getting competing mobile operators to work together at all is challenging, said one participant, who had a tough time convincing 12 competing mobile banks in Cambodia to “unite all telecoms companies under one common switch”.
Engaging civil society as distributors and educators will be also be key to accelerating access in east Asia, according to one participant. However, another speaker warned against a “light touch, low cost” approach to financial literacy, saying the message does not always translate in real terms: “We should, though, leverage existing community groups. We provided a platform for farmers to share agricultural knowledge; financial services is just one part of that.”
Although the discussion often focused on the financial sector’s relationship with consumers, one contributor urged participants not to overlook the lack of trust within the sector. “I’ve been part of negotiations between telecoms and banks and it’s hard to see any trust there. Any new financial inclusion framework must start with building trust between the different stakeholders.”
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