Halfway through 2016, global growth looks likely to come in under 3% for the fifth consecutive year. Policymakers in both mature and emerging markets continue to grapple with headwinds, relying on expansive monetary policy and struggling to push through structural reforms to accelerate growth. In the search for sources of growth, one area that doesn’t get nearly enough attention is the world’s low-income population. Integrating them into the financial system would alleviate poverty and be a source of greater long-term growth for the broader economy.
Approximately 2 billion people around the world still do not have access to a savings account. Recently, we have seen stories of how technology and telecom firms are creating innovative solutions to help those who are most underserved access the formal financial system. What’s been missing from this story is the important role banks have played in driving financial inclusion efforts globally.
According to the World Bank’s Global Findex database, over 90% of the 721 million new accounts opened around the world in 2011-14 were opened at financial institutions, the vast majority of which were banks. A new study by the Institute of International Finance (IIF) and the Center for Financial Inclusion at Accion (CFI) looks at the strategies banks in emerging markets are using to reach underserved customers. Banks are harnessing new technologies and leveraging partners to create sustainable programmes to reach the underserved.
In India, of course, the government has placed a high priority on financial inclusion, with a push for universal access to basic accounts through the Pradhan Mantri Jan Dhan Yojana (PMJDY). State Bank of India has led efforts in opening PMJDY accounts and has been a strong proponent of the new RuPay debit card, in partnership with the National Payments Corporation of India. Customers who use the debit card also receive free accident insurance coverage of around $1,500. In Indonesia, Bank Mandiri is using technology to capture bank information including credit history, microcredit and microbusiness behaviour, and mobile use to ensure that the programmes developed by the bank are as efficient and effective as possible.
Many banks are also investing heavily in agent banking. Agents are replacing branches as the touch point for relationships with low-margin, high-volume customers. Banco de Crédito del Perú is utilizing over 6,000 agents throughout Peru to complete more than 14 million transactions per month. The personal interactions that these agents are able to make with clients who may be opening their first accounts have greatly increased banking penetration in rural areas.
While banks are making exceptional headway in inclusion efforts, there are many still without the capability to enter the formal financial system. The banks in the IIF-CFI study highlighted specific strategies related to technology, data, partnerships, financial capability and other key issues, and included recommendations for action.
By developing regulation that supports digital banking, and by moving their own operations to digital banking, regulators will be facilitating the type of environment that welcomes financial inclusion efforts. Despite the commitment of some countries, including India, one of the biggest challenges many of the banks still face is the slow capacity-building of their regulators and supervisors. Banks are eager to further implement their programmes to serve low-income and other underserved customers, and are keen to work more closely with policymakers on advancing these programmes as efficiently as possible. Policymakers and regulators should seize this opportunity to create a regulatory environment that welcomes and encourages these efforts. By bringing more people into the financial system, we encourage more transactions, more savings and, ultimately, stronger growth.
Inclusion of this underserved population in the financial ecosystem will not only help revive subdued growth, but will improve the lives of many who were previously unable to access the traditional financial system, and banks are at the forefront of these efforts.
Tim Adams is president and chief executive officer, Institute of International Finance.
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