Access to Finance - What is the Best Way Forward?
By Catherine RubbensThe World Bank estimates that in some countries, fewer than 10 percent of people have access to financial services of any kind. In many countries, the most vulnerable people often cannot use a bank account to manage payments, save securely or get a loan at competitive rates.
Banking for Billions, an Economist Intelligence Unit publication commissioned by Barclays, examines the current global landscape for access to financial services and assesses next steps. The report confirms that financial exclusion reinforces the poverty cycle in both developing and developed states by preventing access to basic needs such as healthcare and education. It also stresses that financial inclusion goes far beyond small loans and that there is a strong need for other services such as insurance, transactional accounts, payment services, financial education and savings.
Technological solutions play a vital role in expanding financial inclusion worldwide, particularly in regions such as Africa where mobile technology has expanded more rapidly than physical banking infrastructure. In Kenya, for example, over 9 million customers have registered to use Vodafone’s mobile money transfer service M-PESA. Rural recipients of such money transfers have increased their income 30%, according to research by Assist the Poor. Vodafone has since been able to offer similar services in the emerging markets of Ghana, South Africa, Tanzania and Quatar.
However, the development of products and services for the underbanked is not without challenges. Profitability in microfinance comes from volume, not price. This requires developing low cost products with the assistance of marketing innovations in product design, price, distribution channels and promotion.
Critics fear that involvement of commercial banks in provision of financial services to the poor may lead to further exploitation of the unbanked, as recent exposés of corruption in the Indian microcredit market demonstrates. Further to this research has also demonstrated the tenuous link between current microfinance structures and poverty alleviation. Financial institutions will need to strike a delicate balance between profit-making and social responsibility, and continually be creative about providing a portfolio of access to finance solutions that inspire personal, community, and regional development. New challenges can arise for regulators; for example, as new kinds of transactions transform local kiosks into bank tellers, a lack of traceable transaction records could enhance abuse and fraudulent activities.
Partnerships involving multiple stakeholders from private sector banks and the providers of general business infrastructure to governments and policy makers are fundamental in achieving progress. These will encourage closer collaboration with groups who support underserved constituents. Collaboration should focus on conducting joint market analyses to better understand low income group needs and barriers for that segment.
Organisations supporting low income and underserved stakeholders should work with banks to provide lower risk access to credit. Policy makers’ most important roles will be to create and empower institutions and legal systems that support financial services, protect consumers, collect information and promote competition. Finally, business partnerships across various sectors such as banking, information communication technology, health and insurance should continue to develop innovative solutions to provide financial access to the poor.
