The concept of financial inclusion (FI) has gained increasing importance since the early 2000s when a direct correlation between financial inclusion and poverty reduction was uncovered. Access to a well-functioning financial system can economically and socially empower individuals, particularly the poor and the disadvantaged people.
Benefits of FI go beyond individuals. Greater accesses to financial services for individuals as well as firms strengthen the prospects of reducing income inequality and accelerating economic growth. Today, FI is an integral part of mainstream thinking on economic development.
The 2014 edition of the Global Financial Inclusion (Global Findex) data-base reveals that between 2011 and 2014 globally 700 million adults became account holders. The number of unbanked populations dropped by 20 per cent from 2.5 billion in 2011 to 2.0 billion in 2014.
In October 2013 the World Bank Group (WBG) set for the ambitious target of achieving Universal Financial Access (UFA) by 2020. The objective of UFA is to ensure that "By 2020, adults globally have access to an account or electronic instrument to store money, send and receive payments as the basic building block to manage their financial lives".
NEW TECHNOLOGY CHANNELS FOR FI: The majority of the 2.0bn unbanked live in six of seven most populous countries in the world. South Asia, with 21 per cent of the global population, is the home to most of unbanked population of the world with percentage ranging from 60 per cent to 90 per cent. Bangladesh is the country with 5th largest unbanked population.
The main reasons of financial exclusion is high cost, lower access at remote areas, ineffective product/channels, unawareness/low literacy and insufficient income. Concentrating on traditional 'bricks and mortar' banks is incapable to realise the targets of mass financial inclusion, mainly due to their comparative higher costs and physical limitation of coverage.
The greatest opportunity to make progress on FI in developing and emerging economies like Bangladesh is provided by new technology channels like the mobile phone. The wide reach of mobile phones enables more people to access financial services quickly and easily with a less expensive as wells as more convenient alternative. The large rural populations with a mobile phone but no bank account provide a perfect base to reach out to the unserved groups.
CREATING AN ENABLING ENVIRONMENT: One of the critical ingredients in creating an enabling FI environment is the willingness of public and private sector leaders to coordinate to extend access to and use of financial services.
The action framework for Universal Financial Access (UFA) announced by the World Bank consists of three pillars and three enablers. According to UFA framework, digital payment instruments or the mobile financial service (MFS) is the first and foremost driver of financial access. Diversified access points and scaled-up social transfers have been identified as the second and third pillar of UFA framework. The enablers for the pillars consist of infrastructure, regulatory environment and political commitment.
Establishing a national FI strategy with measurable targets is an essential component of FI. Over 50 countries, governments, central banks, operators/financial institutions and policy makers committed to FI targets are working to accelerate UFA in respective national agenda.
The government of Bangladesh announced a plan to digitise all forms of social safety payments to citizens and all forms of fees that citizens make for services to the government, to accelerate its transition from cash to digital payments. In addition, the government aspires to enable the digitisation of domestic and international remittances and financial transactions for e-commerce. To realise the ambitions set forth by Bangladesh government, the first necessary step is to create an enabling environment for FI.
COMMITMENT MATTERS: Recently Economist Intelligence Unit (EIU) published the report, "Global Microscope 2015: The enabling environment for financial inclusion', which ranks Bangladesh at 40th position. Thirty-seven out of 51 countries that the report studied and covered in the year 2014 and 2015 indices saw an improvement in their overall scores from last year; while only nine countries experienced a decline. Bangladesh, which slipped the most in 2015 (six points), dropped mostly in the score for Government Support for FI.
Lessons from best performers in the Global Microscope 2015 index indicate that commitment matters and previous success does not exempt countries from the new challenge of adopting electronic-payment systems.
Countries like India, Ghana, Sri Lanka, Nigeria etc., initially kept the scope of small transaction and payment services limited to banks. Unsuccessful policy outcome through low uptake or low active wallet users of MFS services have compelled those countries to reconsider their previous stance and all these countries have opened up MNOs scope in latest regulation.
GLOBAL BEST PRACTICE: FI and MFS growth is positively correlated. The countries which show better ranking in financial inclusion has a competitive MFS regime where both banks and non-banks compete in the payments industry. We need to look into how the top-ranked countries have done and from their experience we can design our framework to yield the best result in the shortest possible time.
Globally, Latin American and Sub-Saharan African countries have secured most of the top 10 positions in the Global Microscope. Five Latin American markets -- Peru, Colombia, Chile, Mexico and Bolivia -- rank among the global top 10 on overall scores in national financial inclusion strategies. Â
Latin America: Peru is the leader in developing innovative and coordinated strategies to support financial inclusion. The government has encouraged co-operation among different ministries, departments and the private sector. Peru is the first country to create a new license for specialised operator and pass a law which allows for MNOs and other players to issue and transfer electronic money.
Colombian regulator, after being disappointed with the results of the bank-led model, recently switched to a model that allows non-banks to launch mobile money services. The Financial Inclusion Bill in September 2014 created a new financial license to allow new players, including non-banks such as MNOs to enter the low-cost electronic deposits market.
Africa: The sub-Saharan Africa accounts for 53 per cent of the global live services with 153 services. Kenya tops the list of African countries with ease of access to financial services. The central bank of Kenya has adopted a functional (rather than an institutional) approach to regulation where banks and non-banks, including MNOs, are permitted to provide MFS.
Regulatory and supervisory capacity for financial inclusion is particularly strong in Kenya, Tanzania, Mozambique, Rwanda and Uganda. Both in Kenya and Tanzania, M-Pesa -- a mobile-phone-based money-transfer service -- accounts for most of the MFS activities. The number of mobile money accounts opened by MNOs in Kenya, Madagascar, Tanzania, and Uganda is higher than the number of bank accounts.
Asia: Among the Asian countries, the Philippines, India and Pakistan ranked third, fourth and fifth for being the most conducive country respectively for FI.
The Philippines has a national financial inclusion strategy with specific commitments. Actions taken by the Bangko Sentralng Pilipinas (BSP) have enabled mobile money success through their progressive regulations. Enabling mobile operators to offer e-money, empowering non-banks to perform cash in/out and providing legal certainty to formalise rules have all contributed to success in the market.
India has secured 4th rank for its recent move with financial inclusion programme. India has put in place a Financial Inclusion Policy, which focuses on universal coverage of basic bank accounts, promotion of agent banking model and mobile banking. A framework that has been systematically put into action allows MNOs and seven other kinds of non-bank players to offer payment bank service including internet banking, insurance, pensions, bill payment service for customers etc.
In Pakistan, the Ministry of Finance and State Bank of Pakistan (SBP) released the National Financial Inclusion Strategy in June 2014, which makes a commitment to support the growth of digital transaction accounts (DTAs) with a target of 50 million DTAs by the year 2020. Though the model is bank-led but from very beginning, the SBP allowed and encouraged partnership of both MNO and bank in a mutually beneficiary structure. Through participatory consultation process and open minded regulatory environment bank, industry and MNOs have worked together to bring a sustainable model to the market.
Mobile financial services (MFs) are thus among the most promising mobile applications in the developing world and have become a general platform that transforms entire economies, as it is adopted across commerce, health care, agriculture, and other sectors.
Globally, the overwhelming majority of MFS customers are using services directly offered by MNOs. The vast majority of the fastest growing deployments are operating in markets where the regulator allows both banks and MNOs to offer mobile money services.
The writer is a Business & Technology Policy Analyst. He is also the Secretary General of AMTOB and a former senior vice-president of the Dhaka Chamber of Commerce &
Industry (DCCI) & BASIS.
 timnkabir@gmail.com
Creating an enabling environment for financial inclusion
T I M Nurul Kabir in the third of a four-part article on 'Financial Inclusion for Sustainable Development' | Published: August 15, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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