Mumbai: India lags behind developing countries in opening bank accounts, but is much closer to the global average when it comes to borrowing from formal institutions, a World Bank study says.
The first of its kind study by the development research group of World Bank, released on Friday, analysed how adults aged 15 years and above in 148 economies save, borrow, make payments and manage risk to measure financial inclusion globally. The survey interviewed 150,000 people.
In India, World Bank researchers interviewed 3,518 people across states except the northeastern region between April and June 2011 and found that 35% of people had formal accounts versus 50% global average and 41% average in developing economies.
But eight out of every 100 respondents surveyed in India had borrowed from a formal financial institution in the past 12 months, in line with the average in developing countries, and a tad lower than the 9% global average.
Scene from outside a rural bank
“Though account penetration varies widely across regions, income groups and individual characteristics....(globally) 22% of adults report having saved at a formal financial institution in the past 12 months, and 9% report having taken out a new loan from a bank, credit union or microfinance,” authors Asli Demirguc-Kunt and Leora Klapper wrote.
The paper provides interesting points on who uses banking services and why.
For example, in India only 26% women reported having a formal financial account, much lower than the 47% global average, and even lower than 37% average of developing countries.
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“There are sharp differences between high-income and developing economies in the frequency of deposits and withdrawals, in the way that people access their accounts and the payment systems they use. In developing economies, 10% adults with a formal account report making no deposits or withdrawals in a typical month; in high-income economies only 2% report this,” the paper said.
Bank accounts in developing economies are used mostly to make deposits and withdrawals, primarily through tellers at bank branches, but people in high-income economies rely more heavily on automated teller machines (ATMs).
“Debit cards, check, and electronic payments are also far more commonly used in high-income economies,” the paper said.
Worldwide, 26% of account holders use their accounts to receive money or payments from the government, mostly in developed economies, but rarely in developing countries in south and east Asia and the Pacific.
“Compared with counterparts in other parts of the world, adults with a formal account in high-income economies, Europe and Central Asia, and Latin America and the Caribbean are most likely to report having used their account in the past year to receive wage payments, and those in Sub-Saharan Africa the most likely to report having used their account to receive payments from family members living elsewhere,” the paper said.
Demirguc-Kunt and Klapper describe the expansion of financial services through mobile phones in the developing world as a “bright spot”, dubbing sub-Saharan Africa as the “greatest success”.
“In sub-Saharan Africa, 16% of adults—and 31% of those with a formal account—report having used a mobile phone in the past 12 months to pay bills or send or receive money.”
The authors, however, noted that the experience in India in mobile banking has not been good because of government regulations introduced in 2008, which required mobile money schemes to be operated by telecom companies only in partnership with banks.
“This has probably contributed to the slow growth of mobile money in India, where only 4% of adults in the sample report having used a mobile phone in the past 12 months to pay bills or send or receive money,” the paper said.
National Payments Corp. of India Ltd (NPCI), jointly owned by banks, is the nodal agency to manage and promote mobile money transfers along with electronic payments in India.
NPCI managing director and chief executive officer A.P. Hota said it is wrong for the World Bank report to compare the African success with India.
“In countries like Kenya, South Africa and Zambia, there are just one or two telecom companies who corner 70-80% of the market, so a Vodafone can be present everywhere in the country. But in India, there are 16-17 players and it is difficult for a single player to have that kind of network,” Hota.
According to him, India and Africa can’t be compared because bank branches have higher penetration in India.
Mobile banking guidelines were announced by the Reserve Bank of India in 2008, but it was only in 2011 that telecom companies such as Airtel and Vodafone launched their services.
Hota said around 38 million user have already registered to transfer money using mobile phones in India.
He expects the number to increase to 100 million in the next two years.
“We have realized that application-based systems do not work. People want simple systems like SMS-based ones and we are working on it,” Hota said.
Besides mobile banking, the study also shows India is one of the most underpenetrated market in terms of credit cards and outstanding mortgages, with only 2% penetration, much lower than the 7% credit card average usage in developing countries.
In Israel, credit card penetration is the highest, 80%.
PDF by Shyamal Banerjee/Mint.