Financial Inclusion (FI) has been broadly recognised as critical in reducing poverty and achieving inclusive economic growth. The ability of inclusive finance to empower low-income populations has now pushed forward FI as one of the essential building blocks supporting the key elements of Sustainable Development Goals (SDGs). The United Nations, in its blue book titled "Building Inclusive Financial Sectors for Development" (2006), defines financial inclusion as the "access to the range of financial services at a reasonable cost for the bankable people and farms". Basic financial services include savings, short- and long-term credit, insurance, pensions, payments, leasing and factoring, mortgages, local money transfers and international remittances. 5A's are key to FI: Availability, Awareness, Accessibility, Affordability, Adequacy.
The Maya Declaration, announced in 2011 by the Alliance for Financial Inclusion (AFI), is the first global and measurable set of commitments by developing and emerging country policy makers to unlock the economic and social potential of the poorest people through greater financial inclusion (FI). Bangladesh pledged formal commitment to the Maya Declaration in 2012.
In 2015, government leaders representing 54 institutions across 61 countries signed the Maya Declaration pledging to recognise the importance of financial inclusion, develop a financial inclusion policy, implement sound regulatory frameworks, recognise the importance of consumer protection, and use data-to-track progress toward FI.
THE DIGITAL CHANNEL OF FI: While there are a variety of pathways to financial inclusion (FI), having accessible and affordable digital networks and appropriate regulatory frameworks is vital. Particularly, the prevalence of mobile phones has opened up many opportunities to reach to the poor segments, especially in remote rural areas.
In recent years Mobile Financial Services (MFS) are being deployed rapidly across emerging markets (Asia, Africa, Latin America) as a key tool to further the goal of financial inclusion. The wide reach of mobile phones enables more people to access financial services quickly and easily with a less expensive more convenient alternative.
Uptake of MFS has grown significantly among millions of people around the world who have little or no previous experience with formal financial services. In analysing why some nations perform better than others with respect to FI, the factors that often distinguish top performers include mobile capacity and regulatory frameworks.
POTENTIAL OF MFS: MFS is changing the landscape of financial inclusion with 271 services in 93 countries. In 2015, 37 markets had ten times more registered agents than bank branches and registered customer accounts grew 31 per cent to reach a total of 411 million registered accounts globally. That makes MFS an indispensable driver to expedite FI.
MFS is best positioned to have an economic inclusion impact through its ability to meet the needs for the day-to-day financial services, unbanked and underbanked consumers. Delivering financial services over mobile devices offers significant cost benefits to banks as this reduces the overhead of installing and maintaining a high-cost physical ATM network.
MFS have the potential to increase Average Revenue per User (ARPU) for mobile operators by increasing data traffic, which in turn helps the underserved gain access to the financial system and grow their financial capability.
MFS PENETRATION IN AFRICA: The impact of MFS is most pronounced in sub-Saharan Africa where the number of adults with a mobile money account has increased by 10 percentage points, from 24 per cent in 2011 to 34 per cent in 2014. In 2015, 19 markets, including Burundi, Cameroon, Democratic Republic of the Congo, Gabon, Guinea, Kenya, Lesotho, Madagascar, Paraguay, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe, had more mobile money accounts than bank accounts. Chad, Ghana and Liberia joined the list from 2014.
FinScope surveys conducted by the Financial Sector Deepening Trust (with networks throughout Africa) show a dramatic decline in the share of the 'financially excluded' population in Africa. For example, in Rwanda, 89 per cent of the population had some kind of financial access in 2016. Mobile money penetration relative to mobile connections is also deepening. In markets where mobile money is available, 10 per cent of mobile connections are linked to a mobile money account, compared to 8.0 per cent in December 2014.
However, outside sub-Saharan Africa, mobile money account ownership remains low, indicating huge potential for this new industry to grow. In South Asia, the share of adults with a mobile money account is only 3.0 per cent, Latin America and the Caribbean 2.0 per cent, and less than 1.0 per cent in all other regions.
POTENTIAL VS GROUND REALITY: Bangladesh has made commitment for providing access to quality financial services for the under-resourced population through emphasis on digital financial services and a responsive regulatory environment.
Registered MFS accounts in Bangladesh experienced the fastest rate of increase in 2013. bKash Ltd. boasted more than 120,000 until that time and was the second largest MFS company in the world in terms of the number of individual accounts.
However, the World Bank's 2014 Global Financial Inclusion (Global Findex) database found that over 69 per cent of Bangladesh's adult population did not have an account with a formal financial institution or MFS provider.
According to Bangladesh Bank (BB), there were 33.9 million registered MFS accounts in February 2016, but 59 per cent of those accounts were inactive. The active wallet users therefore stand around 5.0 per cent users. Notably, 85 per cent of transactions are done over the counter (OTC) through agents.
Global Microscope 2015, a report published in the Economist Intelligence Unit notes: The enabling environment for financial inclusion ranks Bangladesh at 40th position. India and Pakistan are ranked in 4th and 5th position respectively. Of the 51 countries the report studied and covered in the year 2014 and 2015 indices, 37 saw an improvement in their overall scores from the previous year, while only nine experienced a decline. Bangladesh, which slipped the most in 2015 (six points), dropped mostly in the score for Government Support for Financial Inclusion.
ENABLING REGULATORY APPROACH: Having an enabling regulatory approach has an effective impact on both the development of the MFS market and FI in general. Today more regulators globally are recognising the importance of creating an open and level playing field for MFS. In 2015, 51 of the 93 countries had an enabling regulatory framework.
The cross-industry nature of MFS prompts regulators, in both the telecom and financial sectors, to confront important questions and develop a new generation of financial regulation. This leads to the emergence of new regulatory concepts of e-money and payment. The prime critical ingredient 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 Bank of Tanzania closely monitored the development of new digital financial services and facilitated dialogue with mobile money providers (MNOs who are the Mobile money providers in Tanzania) before developing regulations specifically for mobile money services and non-bank mobile money offerings. As noted, dedicated financial inclusion bodies can serve as useful platforms for engagement.
In Kenya, M-PESA is being used by 18 million people, or almost half of the population, just in five years after its commercial launch. What banks need to take note of is that in markets like Kenya, Tanzania, the Philippines and Sri Lanka many telecom companies are spearheading the development of MFS.
The government of India took special policy moves to put in place FI policy and has come up with the concept of 'payment bank'. This policy allows MNOs and seven other kinds of non-bank players to offer payment bank service including Internet banking, sell mutual funds, insurance, pensions, bill payment service for customers etc.
In Pakistan, mobile money service Easypaisa launched a P2P pilot project in 2014 that "eliminated all fees related to money transfers (P2P) between Easypaisa account customers and cash-out transactions." Providing such incentives should speed up the adoption of MFS.
IMPORTANT STEPS FOR FI: Most international reports find enough room for Bangladesh to make improvement in the FI arena and for that, the market needs to have more competition, innovation and investment in the industry.
It is important to advance FI by leveraging regulatory and policy capacity to open up the financial services market to both banks and non-banks, encouraging meaningful and effective partnership, interoperability among providers, minimising burdensome restrictions on service provisions that constrain scalability, and designing tiered/graduated taxes to avoid barriers to usage by financially underserved groups.
For actual implementation of FI commitments, Bangladesh requires unbanked people to have access to an array of innovative and customised financial services that provide them opportunity for saving, credit, insurance and other forms of payments (G2P, P2G, B2C, C2B etc.). These services have not been taken up so far mostly, among other factors, due to lack of competition in the market.
Through promoting technological and institutional innovations both government and non-government organisations of Bangladesh should try to provide access to convenient, quality, affordable financial services to the poor, in a way that ensures clients are protected, informed and able to make good money management decisions.
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
Mobile financial service most potent for financial inclusion
T I M Nurul Kabir in the first of a four-part article on 'Financial Inclusion for Sustainable Development' | Published: August 13, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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