Opening the door to formal finance
Global access to formal finance – and the innovation being harnessed to enable it – has, in the past decade, gone through a period of what feels like unprecedented transformation.
According to data from Global Findex – a joint research between World Bank and Gallup Organisation, with funding from the Bill and Melinda Gates Foundation – 1.2 billion consumers gained access to formal finance between 2011 – 2017. While the majority of these came through accounts at traditional financial institutions, digital channels for payments, savings and credit are used by most consumers.
Mobile money is increasingly responsible for accelerating financial inclusion. In Sub-Saharan Africa, for example, the share of adults with a mobile money account almost doubled from 2014–2017, reaching 21%. This was comparable to an increase of only 4% for those using traditional financial institutions such as banks.
“Along with the opportunities, there are risks with this rapid shift to increased reliance on digital financial services,” says Margaret Miller, Lead Financial Sector Economist at the World Bank.
“For those consumers who have remained outside of the formal financial system and lack either a bank account or mobile money account, they may find it more difficult to conduct business, receive government transfers or take advantage of new opportunities such as shifts toward e-commerce and other digitally-enabled business models. Policymakers are responding to these difficulties by making it easier to open small-balance accounts remotely.”
One example is an initiative launched by the Central Bank of Egypt which provides an e-KYC (electronic Know Your Customer) solution to facilitate the electronic opening of bank accounts, while increasing transaction limits for mobile financial services.
The IMF and World Bank are also monitoring policy responses in the wake of the COVID-19 crisis such as increasing transaction limits on digital payments and the temporary waiving of fees.
“Financial services providers of all types are working to close the gap in access to formal finance, leveraging technology for greater convenience and lower cost services,” says Miller.
The World Bank’s recent report, Digital Financial Services, references examples such as that in Tanzania, which has experienced “explosive growth” in the use of mobile money since the service was first introduced in 2008. This has led to several innovations which World Bank says has had “an important impact on financial inclusion”. These include Vodacom and CBA’s digital savings and credit product M-Pawa; Jumo and Airtel’s Timiza digital credit product; and FINCA Microfinance Bank and Halotel’s digital savings platform HaloYako.
Meanwhile, in India, the Financial Innovation and Network Operations (FINO) has been launched to help enable financial institutions to reach out to unbanked geographies. FINO payments bank now has 265 branches and over 170,000 service points providing deposits, savings, loans, and insurance services, as well as over a million monthly remittances, delivered to rural recipients.
In 2011, BRAC Bank established mobile banking operation bKash, which has grown to become the largest mobile financial services provider in Bangladesh. bKash now has 30 million registered users globally and relies on its agents – airtime providers, kiosks, grocery store owners – to provide ‘cash in and cash out’ services, enabling customers to withdraw or deposit cash in their accounts.
On a strategic level, World Bank Group is working with more than 30 private sector partners through the Universal Financial Access 2020 initiative to improve financial inclusion. The organisation has joined forces with authorities in a number of countries (Ethiopia, Indonesia, Pakistan, Vietnam and many others) to develop National Financial Inclusion Strategies. The World Bank is also working to advance women’s financial inclusion and is part of the Women Entrepreneurs Finance Initiative (We-Fi) which is helping close the gender gap in finance for firms.
“The unbanked are increasingly found among the ‘last mile’ and are especially hard to reach due to geography, limited access to technology and a supporting infrastructure and ecosystem, accessibility/disability or other issues,” adds Miller.
“Targeted interventions will be needed to continue to close the gap and this will require a keen understanding of these markets and consumers. Demand-side analysis and data, including qualitative data from focus groups, interviews and other similar techniques, will be important for understanding needs, local barriers to adoption and delivering digital financial products that provide sustained value.”
Read more from Margaret Miller in our ‘Protecting the unbanked from the move to digital’ article on pages 24-6 of the Winter 2021 issue of Chartered Banker magazine.