Financial inclusion, a tool to reach out to the excluded




The issue of financial inclusion has generated discuss in several quarters, and different institutions as well as individuals and corporate entities have voiced out their positions with a view to finding a lasting solution to the problem. DAVID AGBA reports.

One of the main hurdles in extending financial inclusion has been to increase the outreach of financial services to low-density areas and low-income populations, as this is deemed to be not financially sustainable under traditional banking models and corresponding regulatory requirements.

The problem

The problem of financial exclusion is compounded if the focus is shifted towards people living on less than $2 per day, as their income is not only low but also irregular. Thus, they are more vulnerable to external shocks and their cash flows are uncertain.

There are many reasons why individuals or groups may not take full advantage of mainstream financial service providers.

World Bank report

A recent World Bank study shows that the most frequently cited reason for not having an account globally is a lack of enough money to use. The next commonly quoted reasons are: banks or accounts are too expensive; another family member already has access to an account; banks are too far away or difficult to access; and lack of documentation.

The working poor (living on less than $2 a day), who make up over 60pc of the total labour force in developing countries, represent a key target market for expanding financial inclusion. Meanwhile, because small and medium enterprises (SMEs) are overall one of the largest employers of the working poor, the SME market is a big opportunity for expanding financial access.

Jaiz Bank

In the light of the foregoing, Nigeria’s first non-interest bank, Jaiz Bank Plc., recently restated its commitment to provide financial inclusion to a large segment of the society who are currently financially excluded.

Its Managing Director, Hassan Usman, speaking at the National Financial Literacy Stakeholders’ Conference in Abuja, said that Jaiz Bank being itself a child of financial inclusion policy of the federal government to provide non-interest banking for those who prefer it would ensure that there is deep penetration of financial services to the ordinary citizenry.

Agency banking

He said Jaiz Bank has been part of the process of ensuring financial inclusion through agency banking and also the use technology to reach the unbanked.

He said: “We are running a pilot in a village in Katsina State where we will interact with women entrepreneurs that are selling akara (bean cake), fura de nunu and such other micro businesses so that we can empower them.

“We are not going there primarily to get deposit but to empower them with small credits so that they will now in turn generate wealth. What we are trying to do at this stage is to empower these women groups both in the villages and the cities so that they can get some financing that they presently lack to develop their business.”

Relaxed restrictions

He said the targeted group would be allowed to open account without meeting the strict Know Your Customer requirements like utility bills, international passports etc.

“These people don’t have that but the policy allow us to open accounts for people at that level.

“These accounts are opened as financial inclusion accounts and then graduate into the next level, but what we are trying to do is to use channels such as agency banking, our own branches and other digital avenues to allow as many people to come on board and also empower them with little credit,” Usman said.

Pilot programme

He said once the pilot programme succeeds in Katsina state, it would then be rolled it out across many other locations.

“We are aggressive in this area of financial inclusion. Our experience with the pilot so far is exiting because people like to be supported. The only challenge is in convincing beneficiaries that the money is not free, that it will have to be repaid. Everyone would like to be supported financially,” he said.

Pakistani experience

It is important to note that Pakistan has one of the lowest financial-penetration levels in the world, with 56 per cent of the adult population totally excluded and another 32 per cent informally served. The microfinance sector has been able to tap a small fraction of the market, with around two million active borrowers, as per a 2011 State Bank of Pakistan (SBP) report.

Teledensity

Mobile banking is the best alternative to minimising financial exclusion. According to a Pakistan Telecommunication Authority report recently, the country’s teledensity had reached 75pc of the population, whereas mobile penetration stood at 76.6pc and total mobile subscribers numbered around 139.9m.

Mobile services are being availed nearly by every Pakistani regardless of his or her income level and social status. They not only serve the basic purpose of communication but are in fact helping business concerns and the country’s economic well-being.

Branchless banking

The SBP developed branchless banking (BB) Regulations in 2008 and revised them in 2011 by enhancing know-your-customer (KYC) requirements and agent due diligence.

BB operations through ‘agent banking’ are gaining popularity in most developing countries. In Pakistan, the BB agents’ network has grown to 204,073, according to the SBP Branchless Banking Newsletter October-December 2014). The network is spread across almost 95pc districts of the country, largely through Telenor and Tameer Bank’s Easypaisa and UBL’s Omni.

Milestones achieved

Pakistan has achieved lots of milestones in building infrastructure for smooth and equitable access of financial services through the creation of a regulatory framework over the years. In 2011, the Economist Intelligence Unit’s Global Microscope Report ranked Pakistan as the best country having microfinance regulations, while the Global Microscope 2014 put it among the top 10 countries with enabling and conducive environments for financial inclusion.

Despite these continuous efforts, the level of financial inclusion is very low. Only 10.30 per cent of adult Pakistanis have an account with a formal financial institution, which is far below the South Asian average of 33 per cent and all middle income countries’ average of 41.4 per cent, as per the National Financial Inclusion Strategy 2015.

Developing an agent channel presents a range of technological and operational challenges for a bank. The challenge is particularly greater for banks pursuing agents to offer financial services to those who previously had no bank accounts. The success of such operations rely mainly on agents as they are the ones providing frontline customer services.

In order to deepen financial inclusion in the country, the regulator should focus more on customer-protection issues, capacity-building of the loan applicants, the formulation of an efficient and effective complaint redressal mechanism, and the interoperability of mobile financial services.

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