Unprecedented technological advancements and corresponding innovations in business models have helped financial inclusion evolve beyond merely connecting people to a bank account. It is, for instance, helping level the playing field for small farmers by providing access to buyers, more efficient pricing, and speedier payments. It is replacing unwieldy paper voucher systems used amid humanitarian crises with prepaid cards for food and supplies. And it is helping small and micro-merchants expand their businesses by leveraging purchase data to enable credit scoring.
Asian economies are well positioned for robust growth — with GDPs expected to rise by an average of 6.3% in each of the next two years. Emerging markets in Asia are also the best performers in economic growth in recent years, especially when compared with emerging markets outside of Asia.
But to ensure this growth is equitable and inclusive, Asian business leaders, academics and policymakers need to confront a host of challenges, including significant “unbanked” and “underbanked” populations. More than 1 billion people within the region still have no access to formal financial services — meaning, no formal employment, no bank account, no meaningful ability to engage in commerce online or offline. By some estimates, only 27% percent of adults have a bank account, and only 33% of firms have a loan or line of credit. As was highlighted by the speakers at the recent Mastercard-SMU Forum in Singapore, greater financial inclusion must become an essential component of Asia’s economic development.
Financial inclusion is on the rise globally. The third edition of the Global Findex data released last week shows that worldwide 1.2 billion adults have obtained a financial account since 2011, including 515 million since 2014. The proportion of adults who have an account with a financial institution or through a mobile money service rose globally from 62 to 69 percent.
Why do we care? Having a financial account is a crucial stepping stone to escape poverty. It makes it easier to invest in health and education or to start and grow a business. It can help a family withstand a financial setback. And research shows that account ownership can help reduce poverty and economically empower women in the household.
Adults around the world and in all income groups use a variety of financial services, ranging from digital payments and savings accounts to loans and insurance. Many low-income adults, however, rely largely on informal financial services — 2 billion adults worldwide, or 38 percent, reported not having an account at a formal institution in 2014, according to Global Findex data. The World Bank has launched the ambitious goal of Universal Financial Access by 2020. This goal is not an end in itself. Rather, financial inclusion is a means to an end.
Which bring us to the question: What do we know about the link between financial inclusion and inclusive growth benefiting all income groups?
Both financial inclusion and financial stability are high on international policy makers’ agenda. For instance, the G-20 has called for global commitments to both advancing financial inclusion (the Maya Declaration and the Global Partnership for Financial Inclusion) and enhancing financial stability (the Financial Stability Board, Basel III Implementation, and other regulatory reforms). One challenge is that there can be important policy trade-offs between the two objectives.
A rapid increase in financial inclusion in credit, for example, can impair financial stability, because not everyone is creditworthy or can handle credit responsibly—as illustrated in the last decade by the subprime mortgage crisis in the United States and the Andhra Pradesh microfinance crisis in India. In addition, trade-offs between inclusion and stability could arise as an unintended consequence of bad or badly implemented polices.
Surging account ownership among the poor. The highest rate of account ownership among women in developing countries. Widespread formal saving.
Those are some of the key financial inclusion trends in East Asia and the Pacific, as outlined in a new policy note drawing on the 2014 Global Findex database.
Since 2011, about 700 million adults worldwide have signed up for an account at a formal financial institution (like a bank) or a mobile money account. That means 62 percent of adults now have an account, up from 51 percent three years ago.
East Asia and the Pacific made an outsized contribution to this global progress. About 240 million adults in the region left the ranks of the unbanked; 69 percent now have an account, an increase from 55 percent in 2011 (figure 1). Poor people led the regional advance, as account ownership among adults living in the poorest 40 percent of households surged by 22 percentage points — to 61 percent. Much of the growth was concentrated in China — which saw account penetration deepen on the bottom of the income ladder by 26 percentage points — but China was hardly alone. In both Indonesia and Vietnam, account ownership doubled among adults living in the poorest 40 percent of households.
The recent global financial crisis has highlighted the impact of credit markets on the real economy, in particular on employment. While an extensive literature exists on how finance can affect corporate investment and overall economic growth, comparatively little is known about the effect of finance on labor market outcomes.
In a recent paper, entitled “Access to Finance and Job Growth: Firm-Level Evidence across Developing Countries” Meghana Ayyagari, Pedro Juarros, Sandeep Singh and I use comprehensive firm-level data across a large set of developing countries to analyze the impact of access to finance on job growth and the heterogeneity in this relationship across firm size. In particular, we study the differential impact of access to finance on MSMEs’ ability to create jobs relative to that of larger firms.
I am pleased to announce the release of the 2014 Global Findex microdata, which includes individual-level responses from almost 150,000 adults around the world. You can download it all here.
Drawing on interviews with adults in 143 countries, the 2014 Findex database measures account ownership at banks and other financial institutions and with mobile money providers, and explores how adults save, borrow, make payments, and manage risk. For each of these countries, the microdata unpacks about 1,000 individual-level survey observations.
With this data, which was collected by Gallup, Inc. in calendar year 2014, you can dive deeper into the indicators presented in the main Findex database. For example, the country-level indicators explore the income gap by looking at adults in the poorest 40 percent and richest 60 percent of households, but the microdata splits it into quintiles. The microdata also covers topics that weren’t included on the country-level, such as unbanked adults' reasons for lacking an account.
I hope you will make good use of the data, and share your findings with us on Twitter @GlobalFindex.
This post is part of a series highlighting the key findings of the Global Financial Development Report 2015 | 2016: Long-Term Finance. You can view the entire series at gfdr2015.
The second part of Chapter 2 of the 2015 Global Financial Development Report examines the use of long-term finance by households. The section first discusses the main reasons that households use long-term finance products, while highlighting the risks inherent to their use. Making use of recent data initiatives, it then shows how usage of long-term finance varies substantially both across and within countries, and then outlines a set of policy recommendations that can help develop and promote long-term finance markets.
Why would households use long-term finance? And what are the risks they can incur?
Long-term finance offers households various tools to achieve their changing objectives throughout their life-cycle. Products such as pensions, insurance, or annuities can help households prepare for retirement, smooth their life cycle income, and insure against various life cycle risks. Student loans or mortgages can make lumpy but potentially high-yield investments affordable to households. Long-term savings instruments can allow households to accumulate and reap term premiums.
Today we release our new research paper and the 2014 Global Findex dataset, an updated edition of the world’s most comprehensive gauge of global progress on financial inclusion. It’s based on interviews with almost 150,000 adults in more than 140 countries worldwide.
We have plenty to celebrate:
- Account penetration is deepening in every region. Sixty-two percent of the world’s adult population has an account, up from 51 percent in 2011, when the Global Financial Inclusion database (as it’s known formally) was launched.
- The ranks of the unbanked are shrinking Worldwide, the number of adults without an account tumbled by 20 percent, to 2 billion.
- Mobile money accounts — accessed via mobile phone — is powering Sub-Saharan Africa’s march toward financial inclusion. While just 1 percent of adults globally use a mobile account and nothing else, 12 percent of adults in Sub-Saharan Africa have a mobile account — versus just 2 percent worldwide. Of those adults in Sub-Saharan Africa with a mobile account, 45 percent rely on that account exclusively.