As Australians pored over the census results, the World Bank released the Global search. This is essentially the global census on financial inclusion, published only every three or four years. Why is it important? Because research shows that access to financial services is an important catalyst for the poor to increase their incomes and therefore their consumption of nutritious food and their families’ spending on housing, education and health care health.
The overall figure is that access to a formal bank account in developing countries (defined as an account at a regulated institution such as a bank) has increased from 63% of the adult population in 2017 to 71% in 2021. While 99% of Australians have a bank account, the figures for many neighboring countries are much lower.
For example, Bangladesh is at 53% (up slightly from 50% in 2017), Cambodia at 33% (up from 22%), Indonesia at 52% (up slightly from 49%), Laos at 37% (up from 29%), Myanmar 48% (a big increase from 26%), Nepal 54% (from 45%), Pakistan 21% (unchanged) and the Philippines 51% (a sharp increase from 34%).
The main driver of this increase has been digitization: one of the few “upsides” of the Covid-19 cloud has been that millions of people have turned to payment platforms such as mobile money accounts and debit cards. The Global Findex 2021 reveals that nearly two-thirds of adults in developing economies who received digital payments also used their account to store money for cash management, about 40% used their account to save and 40 % used their account to borrow.
Questions have been raised about the effectiveness and appropriateness of financial services such as ‘buy now, pay later’ facilities. However, the number of unbanked people in the world is still around 1.4 billion, making these concerns academic for many.
There have been many critical discussions about financial technology (or Fintech) recently – from the viability of “neo banks” to digital currencies such as Bitcoin. However, in the developing world, digital payments can be a crucial way to empower the disadvantaged. Compared to cash payments, digital transfers are generally safer, faster, more hygienic and less expensive. They also have other advantages in terms of access to formal financial services, which can open up additional economic opportunities, especially to exploit income-generating activities, access new markets or obtain useful information such as market prices. and good agricultural practices. Increasingly, financial institutions are analyzing potential customers’ digital transactions, such as their business sales and expenses, to create a digital identity that they then use for credit assessments before issuing loans.
Currently, the level of indebtedness of many people is also a cause for concern. Questions have been raised about the effectiveness and appropriateness of financial services such as ‘buy now, pay later’ facilities. However, the number of unbanked people globally is still around 1.4 billion (down from 1.7 billion in 2017), making these concerns academic for many poor people.
That said, it is vital to ensure that the poor do not become over-indebted, as has happened with some borrowers in countries like Cambodia and India. The work of organizations such as World Vision and Good Return provides financial literacy training to potential borrowers and works with financial institutions to ensure their loans are made in a responsible and transparent manner.
The latest Global Findex also revealed that while women’s disadvantage in accessing financial services has improved from nine percentage points to six percentage points (i.e. 32% are financially excluded by compared to men at 26%), the gender gap remains wide, with 54% of the unbanked being women. Second, the gap between rich and poor has also improved since 2017, but account ownership is still 8 percentage points higher among adults living in the top 60% of households in developing countries. development compared to those of the poorest 40%.
Efforts are being made to improve financial inclusion for people in developing countries, especially women and the poor. World Vision, for example, has supported tens of thousands of informal community groups under the Savings for Transformation (S4T) banner to help poor communities save money and lend each other money in times of need to events such as a family illness, the education of a child and to deal with disasters. Efforts through its microfinance subsidiary, Vision Fund, which manages 28 financial institutions globally, have helped more than one million clients (69% of them women) who are currently borrowing around A$900 million . A recent independent study in two countries severely affected by the pandemic found that 90% of clients believed the loan they received had positively impacted their quality of life or increased their ability to cope.
Despite the achievements to date, there remains a huge need to continue the work done by governments, non-profit organizations, investors, donors and financial institutions, to empower everyone in developing countries that many people in the wealthy world take for granted – namely to save or borrow money and obtain other financial services such as transfers or insurance. The problem is particularly acute in the Indo-Pacific. Almost half of those excluded from formal banking reside in seven countries, five of which are Bangladesh, China, India, Indonesia and Pakistan.
Closing these gaps in financial inclusion has the potential to reduce poverty, as well as increase household consumption and spending on education, healthcare, and income-generating opportunities. This will in turn contribute to greater resilience and financial well-being for the world’s poor.