Financial exclusion harms both the unbanked and their home economies, whether developed or emerging. Embracing innovative solutions to this exclusion is the way forward.
Financial exclusion is a thorny subject. According to the World Bank, 2 billion people globally do not have a bank account, with severe implications for their financial prospects and the economy they live in. This is true for both emerging and developed countries.
While policy efforts to tackle these issue are always welcome, the best thing politicians and banking supervisors can do is to allow for innovation in this space, with the due checks and balances. In emerging markets, for example, the proliferation of mobile phones has bridged the lack of physical infrastructure in remote and underprivileged areas, and has spurred partnerships between telecommunication companies, lenders and fintechs.
Products such as microinsurance purchased at a significant discount when topping up pay-as-you go mobile phones help both individuals (who were previously uncovered), insurers (who are getting new customers); and telecommunication companies (who will often enjoy higher loyalty rates in a particularly fickle market).
Solutions that bring online and mobile banking solutions to people in conflict zones, or initiatives to support female entrepreneurship in male-dominated cultures – such as those implemented by the Bank of Palestine, the winner of The Banker’s Financial Inclusion Award for 2016 – lift the prospects of local economies and, with them, banks’ growth too.
Developed markets should also make more of innovation, however. In the UK, one of the world’s most sophisticated and advanced economies, out of a population of more than 64 million, up to 2 million adults do not hold a bank account and 9 million do not have access to mainstream credit, according to the Financial Inclusion Commission, an independent campaigning body. It also reports that an estimated 2 million people were obliged to take out a high-cost loan in 2012 because they could not access any other form of credit.
Innovation and collaborations between banks, charities, regulators and the government can help here, as they do in emerging markets. The biggest improvements, however, are likely to come from the next generation of entrepreneurs, their ideas and their growing focus on social issues. Policy-makers should embrace this, and promptly adapt rules designed for banks to the new products – even if regulatory change is in itself another thorny subject.
