Financial inclusion key to development
April 27th was declared the Arab Day of Financial Inclusion by the Council of Arab Central Banks in 2016. This day is important for the financial industry and the governments of all the Arab countries, as it confirms their commitment with the financial inclusion.
The financial inclusion ensures the access to proper financial services to the population, ‘proper’ in this context means that the services are affordable for the users and fulfill their needs. To understand more in deep this concept, it is necessary to identify why it is important for the Arab countries and for all the societies around the globe, and the main reason is that the financial inclusion development has a socio-economic and environmental impact:
Social impact: It can improve social variables like equality, employment and GDP per capita. Also, as the financial inclusion is related with the reduction of cash usage, it can potentially decrease the criminality and the inconvenience of cash for the society.
Economic impact: The financial inclusion can benefit the economy by reducing the informality and the tax evasion. Also, the migration from cash to digital money reduces the cost for the government of producing notes and coins, as well as it reduces the private sector costs for managing and transporting cash.
Environmental impact: Increasing the usage of emoney instead of cash has an important impact on the environment, since the emission of notes and coins require consumption of natural resources, manufacturing processes and transportation.
Also, the lack of financial inclusion prevents the people from: saving money in a formal and secure way; access to credits to increase the income generation of their businesses; getting insurances to mitigate the daily risks; and transferring money efficiently, securely and at low cost.
Prior to looking at the financial inclusion scenario in the Arab world, it is important to clarify some concepts. First, the unbanked population are the people that doesn’t have access to financial services. Most of the times, the banked population is defined as the people with at least one financial service, although, this definition is not very accurate, as the people with only one bank account, normally use it to receive their salaries, subsidies or cross border remittances, and they withdraw all the money they get at once, without using the financial services. This happens a lot in the Arab countries, the people with this behavior is considered underbanked. For statistical purposes, the real banked population can be considered as the people with a bank account and another financial service.
The countries with more unbanked population are the ones with the smallest GDP per capita, such as Somalia (61 per cent without a bank account) and Yemen (94 per cent without a bank account). In the other hand, the Arab countries with the highest GDP per capita have significant underbanked rates, such as Qatar (34 per cent underbanked) and UAE (46 per cent underbanked), this is mainly due to the large expat population working in these countries with low and middle income salaries.