G. Grandolini, Senior Director, World Bank Group: Five Challenges Prevent Financ...
Mozambique, October, 08 2015 -
Transaction accounts can help people better manage their lives. But financial access and the underlying infrastructure taken for granted in rich nations – such as savings accounts, debit cards and credit – aren’t available to many in developing countries.
Two billion people worldwide lack access to regulated financial services, despite significant progress and increased technical and financial resources devoted to inclusion.
There is a broad consensus that access to transaction accounts can help people better manage their lives and plan for emergencies. But financial access and the underlying infrastructure taken for granted in rich nations – such as savings accounts, debit cards and credit, as well as the payment systems on which they operate – still aren’t available to many people in developing countries.
In September, I participated in the Global Policy Forum of the Alliance for Financial Inclusion (AFI) in Mozambique. At the annual meeting, policymakers, the private sector and other stakeholders assumed new commitments and discussed best practices to determine the way forward.
I was impressed while talking with AFI members and institutions’ representatives about successes and obstacles in expanding access to finance in various countries. Those hurdles can be grouped into five main challenges.
Financial literacy and capability
Countries must develop financial literacy programs to ensure people can make sound decisions, select products, and know how to use related channels like ATMs or mobile banking.
Recent World Bank Group Financial Capability Surveys in Morocco and Mozambique as well as studies on remittance services among migrants in France and Italy show that a lack of awareness prevents people from using suitable financial products and services. Behavioral insights are leading to more effective – and less costly – financial literacy efforts like tailored text messages, which can improve the creation of new accounts and increase savings.
Valid identification documents
Providing people with a valid ID is essential to access financial services. Without a proper ID, it’s not possible to shift large payment flows like social benefit transfers and wages into transaction accounts. The process to obtain an ID card and open an account needs to be streamlined. In countries where several ID documents are needed to open an account, financial inclusion efforts haven’t made as many inroads as in nations where the process has been simplified.
Consumer protection and regulation
While payment services like mobile money and e-money products can expand financial access, it’s critical to establish secured and reliable platforms to protect data privacy and funds. To promote confidence in using electronic payments, it’s important to treat new customers fairly, adequately disclose key information, and establish safety and reliability standards to allow customers to make informed choices.
Women and the rural poor
Women in developing countries are 20% less likely than men to have an account and 17% less likely to have borrowed from a formal financial institution in the past year. Financial institutions must adapt financial products to suit women’s needs. Women could be provided with valid ID cards and enabled to independently open an account. Or institutions could enhance women’s ability to make basic financial decisions. The 2014 World Bank Group Financial Capability Survey in Morocco showed that women as well as people living in rural areas scored significantly lower on various financial capability metrics – like budgeting or coping with unforeseen events – compared to men and the urban population. Overall, they tend to be less educated or less likely to be formally employed.
Opening a transaction account is the first step, not the end goal. Such accounts must be useful and serve as a gateway to other financial products such as savings, credit and insurance. Some 355 million adults in developing countries who report having an account still remit money in cash or over the counter.
Governments and the private sector can play a key role in increasing usage by depositing wages into accounts versus paying in cash. For example, India’s Pradhan Mantri Jan-Dhan Yojana (PMJDY) initiative is shifting benefits into transaction accounts on a large scale, and has reportedly opened more than 170m accounts.
To tackle these challenges, we need to work together.
In the last two years, the World Bank Group has committed more than $8bn in support for access and inclusion and for developing national and regional infrastructures.
Last spring, the World Bank Group and a number of public and private-sector stakeholders committed to reaching 2 billion people in the next five years through the Universal Financial Access 2020 initiative, which focuses on 25 countries where 73% of the world’s unbanked population lives. However, the World Bank Group is eager to work with all countries where it can add value as a technical partner or provide critical financial support.
This global initiative complements the Maya Declaration, to which many AFI member countries have committed in the last four years. More than 85% of the reduction in the unbanked population between 2011 and 2014 came from AFI nations, and some 55% were from countries with a Maya Declaration commitment.
The World Bank Group and the Committee of Payments and Market Infrastructures of the Bank for International Settlements have analyzed these challenges in the recently released report on Payment Aspects of Financial Inclusion, which will help the financial industry understand how payment systems and services promote access to and use of financial services.
The report suggests key actions countries should take to advance access to transaction accounts. These actions will be crucial to making financial inclusion a reality, which will help reduce global poverty and boost shared prosperity.