Financial inclusion an instrument for increased savings
Banks as financial intermediaries between savers and investors affect the volume as well as mobilisation of savings, by providing the market with the diversification of instruments that will meet the precise needs of savers.
THE various products offered by the banks for those depositors that want to save are supposed to conform to the requirements of the various saving groups in the economy.
Savings are very important in any economy given that they are the main source of funding for sustainable growth, are less costly than loans, are a stable source of funding, and they help in improving public image and confidence.
One of the drawbacks that have been identified as hindering savings by the various groups is the lack of products suited for the disadvantaged in society.
The majority of the poor people have been found to be financial excluded as most do not have access to formal banking services, credit facilities, or savings instruments.
Bringing this largely ignored segment of the market into the formal financial system would enrich and strengthen the savings portfolio in an economy such as the Zimbabwean one.
Access to savings is the key to financial inclusion and low usage of savings services is not an indication of low demand.
It is hence important in the spirit of financial inclusion that the poor should have access and an opportunity to financial services products rather that accumulate assets instead of financial savings.
This can be made possible through various means and should include;
◆ Reducing the amount of time and money that poor people must spend in effecting financial transactions
◆ Increasing poor people’s capacity to weather financial shocks and capture
income-generating opportunities
◆ Generating economy-wide efficiencies by digitally connecting large numbers of poor people to one another, financial services providers, government services, and businesses
A growing body of evidence suggests that increasing poor people’s access to better financial tools can help accelerate the rate at which they move out of poverty and help them hold on to economic gains.
Currently the majority of the disadvantaged groups are carrying out their transactions in cash despite the various risks associated with cash based transactions.
Storing, transporting, and processing cash is expensive for banks, insurance companies, utility companies, and other institutions, and they pass on those costs to customers hence the need for educating the financially excluded groups on the advantages and disadvantages of conducting transactions in cash.
This should also include introducing the concepts of electronic based transactions and their pros and cons.
Electronic based financial services have the potential to reach out to the majority of the citizens hence attracting increased amounts of savings. Besides attracting savings, electronic financial services offer a wide array of benefits:
◆ They connect poor people to the formal financial sector and enable them to become customers and suppliers within the wider economy.
◆ Financial flows can be accurately tracked, resulting in safer and speedier transactions and less corruption and theft. Providers can use financial histories to develop products that are better suited to customers’ needs, cash flow, and risk profiles, including fee-for-service offerings and smaller-unit transactions.
◆ Direct deposits (including wages and government assistance) allow money to “bypass” the home, helping users save rather than spend and often giving women more financial authority within the family.
◆ Automatic reminders, positive default options, and other choices offered via mobile phone menus offer convenience and save time.
The ability of the financial systems which is underpinned by strong and robust legal framework will be able to deliver improved amounts of savings in the economy.
This will then allow the financial excluded to become part of the included in the financial system. The excluded who depend on informal mechanisms for saving and protect themselves against risk through buying livestock as a form of savings.
As the G-Cap organisation reports has shown ‘between the better understanding of demand, the innovations in supply, and the recognition of the need for a protective and supportive enabling environment, we have the means to achieve full financial inclusion’.
Hence financial inclusion is only able to improve savings mobilisation from the disadvantaged groups if the financial institutions are able to discern the requirements of these groups (developing appropriate financial products suited to them) and the financial institutions should be able to be innovative in the way they craft the products for this group.
The Government also has a role to play through developing relevant legal instruments protective of the savers and general making sure the environment is conducive for savings.
Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on abel@baz.org.zw or on numbers 04-744686 and 0772463008