Mak­ing banks ac­ces­si­ble to the poor in Asia

China Daily (USA) - - VIEWS -

Giv­ing the poor ac­cess to fi­nan­cial ser­vices is ac­cepted wis­dom. What isn’t ap­pre­ci­ated is how this is un­der­mined by a lin­ger­ing lack of trust in banks among the peo­ple most in need of their ser­vices.

Many poor cus­tomers in Asia feel alien­ated and ne­glected by banks be­cause fi­nan­cial so­lu­tions are usu­ally not tai­lored to their needs, and when they are, they’re of­ten not clearly ex­plained.

Fi­nan­cial ex­clu­sion can breed poverty traps and in­equal­ity, and de­lay the de­vel­op­ment of ef­fi­cient fi­nan­cial mar­kets. Fix­ing this is im­por­tant for Asia, which, as the en­gine for 60 per­cent of global growth, will bear the bur­den of driv­ing global pros­per­ity for years to come.

An es­ti­mated 1 bil­lion peo­ple in Asia don’t have a bank ac­count. Though sav­ings rates are rel­a­tively high in Asian coun­tries, 300 mil­lion peo­ple save out­side the bank­ing sys­tem through al­ter­na­tive sav­ings chan­nels, such as com­mu­nity sav­ings and credit as­so­ci­a­tions, which don’t pro­vide pro­tec­tions en­joyed by bank de­pos­i­tors if the in­sti­tu­tion fails.

More­over, the poor are de­terred by the cost and dif­fi­culty of open­ing and main­tain­ing an ac­count. The ru­ral mar­ket is still seen by most fi­nan­cial in­sti­tu­tions as high-risk, low re­turn, as well as hard to reach.

Why are poli­cies fail­ing to help the poor­est? And what more can be done?

I once met some il­lit­er­ate wid­ows in north­ern In­dia who com­plained they had waited for months to open bank ac­counts to re­ceive gov­ern­ment com­pen­sa­tion af­ter their hus­bands had died. Com­pli­cated ad­min­is­tra­tive pro­cesses and in­sen­si­tive bank staff left them de­mor­al­ized. The bank said it needed to com­ply with “know your cus­tomer” guide­lines. But even af­ter the pa­per­work was done, at least one of the wid­ows didn’t get any money; the checks had ex­pired and no­body both­ered to ex­plain how to reval­i­date them.

Some ten­ant farm­ers in Pak­istan once told me that they were en­cour­aged to ap­proach a lo­cal bank for loans, only to have their ap­pli­ca­tions re­jected de­spite pro­vid­ing land lease agree­ments as collateral. The hitch: the landown­ers al­ready had out­stand­ing bor­row­ings guar­an­teed by the same par­cel of land.

Sadly, most poor peo­ple still be­lieve loans are for big farm­ers and busi­ness­men. As a re­sult, in­for­mal, of­ten costly, credit sources thrive among the poor, even when fi­nan­cial in­sti­tu­tions of­fer at­trac­tive lend­ing schemes. High in­ter­est rates charged by in­for­mal money­len­ders can cause mount­ing debt that can have tragic con­se­quences, with many farm­ers see­ing sui­cide as the only way out.

Dig­i­tal fi­nan­cial ser­vices can help. Branch­less bank­ing chan­nels such as debit cards and mo­bile phones can en­hance cov­er­age by giv­ing re­cip­i­ents unique iden­ti­fiers and plac­ing the pay­ment in­stru­ment in their hands.

But there are pit­falls here, too. Peo­ple liv­ing in re­mote ar­eas some­times give their ATM­cards and PINs to agents to with­draw their money for a fee— a clear se­cu­rity risk. Poor house­holds also com­pro­mise their dig­i­tal se­cu­rity by shar­ing mo­bile phones used for bank­ing, which could ex­pose them to fraud.

Fi­nan­cial lit­er­acy is the key to re­build­ing trust in bank­ing among the very poor.

Poli­cies that em­power women as ed­u­ca­tors of chil­dren on fi­nan­cial ba­sics and as en­trepreneurs them­selves can help re­al­ize their un­tapped po­ten­tial as fi­nan­cial in­clu­sion en­ablers with enor­mous economic and so­cial ben­e­fits. The re­mu­ner­a­tion of in­ter­me­di­aries deal­ing with poor women— and men for that mat­ter— should be more closely tied to the fi­nan­cial well-be­ing of their clients rather than how much prod­uct they sell.

New tech­nol­ogy like bio­met­ric in­for­ma­tion and dig­i­tal IDs has opened up ex­cit­ing new chan­nels for fi­nan­cial in­clu­sion. But gov­ern­ments need to work closely with the pri­vate sec­tor to im­prove in­ter­net con­nec­tiv­ity for bank­ing, as China has done through a mas­sive pro­gram to boost ru­ral broad­band in­ter­net in­fra­struc­ture.

Loop­holes that al­low in­sur­ers to deny valid claims and banks to wrongly refuse loans must be closed. In­sur­ance claims for homes dam­aged in nat­u­ral dis­as­ters are some­times re­jected be­cause poor pol­icy-hold­ers didn’t read or un­der­stand the fine print. China pro­vides a pos­si­ble cor­rec­tive in its new na­tional earth­quake in­sur­ance pro­gram, which man­dates min­i­mum com­pen­sa­tion lev­els for pol­icy-hold­ers.

And let’s lis­ten to the poor when draw­ing up poli­cies to bring them into main­stream fi­nance. That way, we won’t end up cre­at­ing more prob­lems than we solve. The author is prin­ci­pal fi­nan­cial sec­tor spe­cial­ist at ADB’s Sus­tain­able De­vel­op­ment and Cli­mate Change Depart­ment.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.