[From World Bank PSD blog, 6 September 2012]
from across the developing world prepare to gather at the Alliance for Financial
Inclusion’s annual Global Policy Forum which
will be held in Capetown on 26-28 September, may I offer some thoughts on where
we are at in the excellent financial inclusion journey and what is required to
take it forward.
inclusion by halves
Half the world is unbanked.
In developing countries, half of accounts are inactive. And half of the
active ones have the equivalent of just a few days of household income. (How do
I know this is roughly the picture? I make it a point to throw that into
conversations with bankers and mobile money operators, and eyes are cast down.
The global Findex survey, though it is
silent on account balances, does reveal a large gap between those who say they
have an account and those who say they save in it.) Getting banked is hardly a
quantum leap for most people in the informal sector.
Surely that’s because a majority of poor and informal people who are offered an
account don’t understand how they can benefit from the account. Before we send
the financial education corps in, hear them out. People budget and discipline
themselves by separating money into distinct categories and savings vehicles.
Expecting them to regroup all that value and dump it into a single account goes
against the grain of the financial education they have received from their
parents and grandparents. And having to spread their meager savings across
multiple single-purpose accounts is too complex for them. They don’t need
re-education, what they need is easy-to-use services that accommodate and
extend how they think about money and organize their future outlays.
Half the job of
If savings aren’t a good hook, what about payments? That’s become the standard
bet behind mobile money. It works for remote payments where cash performs
dismally, but it’s a whole different story to get people to pay for goods at
the local store electronically when what they have is cash. We need mobile
money to fulfill the two standard functions of money: storage of value and
means of payment. You can have a great store of value that is a lousy means of
payment (some might think cow), but I can’t see a lousy store of value that is
a great means of payment. The two functions are in fact inseparable.
If you want daily in-store payments to go mobile, you need to find ways to
fatten those mobile accounts.
innovation, I’m afraid
Silence at the top
So what’s the way forward? We don’t have the recipe but it surely involves
listening to customers and trying out new things. I’ve proposed recasting
shorter-term savings as a set of future payments to
oneself – if you have income today, you might send
it to yourself to next Friday because that’s when you have to pay your child’s
school fees. Maybe that’s right, or maybe not. The point is that we need
innovation and we need disruption. Regulators need to be particularly careful
to not entrench the status quo, and to not make assumptions about who will do
what, how, because none of us know. Innovation begins by opening up the field
(think e-money issuer licenses), it is fostered by rolling back regulations
that are no longer necessary with today’s technology (think cashing in/out at
retail shops), and it is fueled by taking bold steps that address major
barriers (think paperless account opening with deferred
know-your-customer procedures on small accounts).
I’m quite impressed at how regulators in many countries have taken the cause of
financial inclusion to heart. But it feels to me it’s more the result of
personal than institutional agendas. This makes it hard to align support inside
and across regulatory agencies (not everyone will be equally concerned) and to
sustain the efforts over time (as administrations change). The institutional
agenda at the working level is driven by the stuff that gets discussed in Basle
and Washington. While regulators don’t hear it from the Basle Committees and
from the IMF, they might have a commitment to financial inclusion but not a
real responsibility. But we don’t hear a peep from these organizations on it,
and while that’s the case selling financial inclusion visions to central
bankers will be an uphill struggle. The guardians of world finance need to tell
us that they care about anyone other than the half of the half of the half who
have significant amounts of money stored in their bank account.