Finance for All - Breaking the Barriers to Inclusion
Widespread access to financial services can help cut income inequality, stimulate small business activity, and promote growth. But just making services available doesn’t guarantee that all groups will benefit from them fully and equally.
A recent Asian Development Bank Institute publication explores the experiences of advanced and developing economies in Europe and Asia in providing financial services to low-income households and small and medium-sized enterprises. It finds that sound regulations, financial literacy and the provision of financial education are key ingredients for effective financial inclusion.
Asia has made big strides in extending financial services to low income groups in recent decades, but despite broad progress, East Asia, the Pacific and South Asia still account for over half the world’s unbanked adults, the bulk of them in India and the People's Republic of China.
Access to services tends to rise with increases in per capita GDP but the study data shows variations amongst countries, including those with similar levels of income, such as Bangladesh and Nepal. This implies that other factors also count, such as regulations, institutions and overall financial development.
Germany has a long history of developing financial institutions tailored at the low income sector, while in Asia, India, Indonesia, Thailand and the Philippines have all been active, particularly in the microfinance sector, although the level of access and coverage of microfinance businesses varies significantly across the region.
Indonesia has introduced Grameen Bank-style credit and Islamic microfinance products, while in the Philippines, insurance companies and mutual benefit associations have begun to provide microinsurance products tailored at the low income sector.
The degree of innovation in products, services and access to financially inclusive technologies, such as e-money and Internet banking, also varies.
In India for example only about 2% of the population use mobile phones to pay bills. In the Philippines, meanwhile, the use of e-money to make payments has expanded sharply in recent years, with over 26 million accounts operable as of 2013.
The study also notes broad differences in regulations promoting access to financial services targeted at low-income groups, as well as levels of consumer protection and financial literacy.
The study concludes that while access has significantly improved, barriers to both the supply of and demand for financial services continue to weigh on inclusion rates for low income groups.
Overcoming these hurdles requires further government efforts to create the right regulations and conditions for financially inclusive businesses to flourish, and for innovative products, services and technologies to be rolled out.
Scaling up financial education both for households and SMEs, and taking steps to encourage more private involvement in the sector are other key elements of a successful financial inclusion strategy.