Ways and means of expanding financial inclusion

Sajid Amit | Published: August 11, 2018 21:20:18 | Updated: August 12, 2018 21:40:11

On April 19, 2018, the third Global Findex Database was released by the World Bank at the Bank's Spring Meeting. According to Consultative Group to Assist the Poor (CGAP), this dataset is "the financial inclusion community's best demand-side measure of financial inclusion globally." Queen Maxima of the Netherlands, a strong and vocal proponent of financial inclusion, opined, "For those of us committed to advancing financial inclusion, no tool is of greater value than the Global Financial Inclusion (Global Findex) database."

Launched with funding from the Bill & Melinda Gates Foundation, the Findex database now has three years of time series data, for 2011, 2014, and 2017, which tells a compelling tale on access to financial services over the past six years. In terms of methodology, the research consists of nationally representative surveys of more than 150,000 adults, aged 15 and above, in over 140 countries. The survey was conducted in collaboration with Gallup Inc. The final dataset is publicly available in the World Bank Group website, on which this article is based.

Overall, the dataset points to an increasingly inclusive financial world that is also transitioning to a digital economy. Between 2014 and 2017, 515 million adults globally opened some sort of formal financial institution account. While financial inclusion has made great strides, nearly half of all unbanked adults live in just seven economies, including Bangladesh (Fig. 1).

PERFORMANCE OF BANGLADESH: Bangladesh also made impressive gains in certain yardsticks for financial inclusion. For instance, the share of people with financial accounts increased from 29 per cent to 41 per cent, in three years. This may appear to be high and is an outcome of the fact that the World Bank definition of a financial account included bank accounts or accounts at other financial institutions, such as microfinance institutions, cooperatives, and credit unions.

Those without a financial institution account were asked about their reasons for not owning one. About 62 per cent cited insufficient funds as a reason for not owning a financial account. Other reasons frequently cited include "someone in the family has an account," "financial services are too expensive," "financial institutions are too far away," and "lack of necessary documentation" (Fig. 2).

Moreover, while 50 per cent of Bangladeshi males have a financial institution account, only 32 per cent among females do (Fig. 3). The growth for males over the last 3 years was 17 percentage points while the growth for females was 7.0 per cent. This is interesting, given that the World Bank measure of a financial account includes microfinance institutions, the primary account holders of which are women. This may indicate that the more recent progress in financial inclusion may have been driven more by mobile money accounts than by microfinance accounts.

Looking at remittance-related data, a more positive picture emerges. The share of people sending or receiving remittances increased from 19 per cent to 29 per cent, according to the Findex data. Among those who sent remittances, the share of senders who used a financial institution account increased from 9.0 per cent to 17 per cent. Meanwhile, senders who used a mobile phone to send remittances increased from 33 per cent to an impressive 69 per cent. Senders who sent remittances in cash and using in-person delivery, decreased from 53 per cent to 23 per cent (Fig. 4). Clearly, sending remittances is moving from informal to institutional channels, which bodes well for the economy.

Significant gains have also been made with respect to paying utility bills through a financial institution account. Among those who paid utility bills, the share of those who paid through an account increased from 4.0 per cent to 31 per cent. This is indicative of the growth potential of agent banking in Bangladesh, as agents are encouraged to collect utility bills as a means of generating revenue for themselves, outside the banking services they promote.

In general, in the realm of digital transactions, significant gains are noticeable. For instance, in three years the share of people with mobile money accounts increased seven times, from 3 per cent to 21 per cent (Fig. 5). Share of people who made or received digital payments increased from 7.0 per cent to 34 per cent.

However, there is a persistent gender gap in the realm of digital financial services as well. Although the ownership of mobile money accounts among women has increased five times in the last three years, it is still at 10 per cent, compared to 32 per cent for men (Fig. 6).

In addition to such persistent inequalities, there is considerable scope for improvement with regard to usage of accounts. Usage clearly trails access, and financial inclusion cannot be merely about increasing the number of accounts, but also ensuring people are using their accounts. Among those with a financial account, people who made deposits went down from 60 per cent to 51 per cent (Fig. 7). Cumulatively, the share of people who made withdrawals or deposits stayed about the same.

CONCLUSION: Referring to the 2017 Global Findex, Ms. Greta Bull, CEO of CGAP and a Director at the World Bank Group, said, "I have been working in the financial inclusion industry for 18 years, and I have never seen the kinds of gains in access we have seen over the past decade. It is an exciting time to be involved in financial inclusion." While that certainly may be the case, and the focus on financial inclusion by governments and the private sector appear to be intensifying globally, it is important to take stock of both the achievements and the areas for improvement. Recent progress around the world and in Bangladesh have been driven by the mixture of a push towards digital payments, favourable government policies, and a new generation of financial services accessible via mobile phones and the internet.

Globally, companies pay wages in cash to hundreds of millions of unbanked adults. A transition to an electronic payroll could help these workers join the formal financial system and also ensure transparency and accountability of the financial function at these companies. This is true for Bangladesh as well. For instance, if the large Ready-made Garments (RMG) manufacturers adopted such initiatives of digital transformation, millions could benefit in the long run. Certain international donor-funded projects that are working with agent banking units of private commercial banks are trying to encourage banks to adopt such practices. Last but not least, all stakeholders involved ought to prioritise the focus on usage of accounts. It is only when people actively use their accounts will we have meaningful financial inclusion, and the fruits of ongoing efforts will be fully realised.

Sajid Amit is Director, Center for Enterprise and Society (CES), and Director, Executive MBA, at University of Liberal Arts Bangladesh (ULAB).


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