Mainstream global banks through the IIF and microfinance provider Accion International released a survey of two dozen emerging market experiences with financial inclusion, which highlighted traditional bank importance as a channel while relating commercial and policy obstacles hampering progress. The definition goes beyond simple account-holding to encompass a full credit and insurance product range and associated education and training. Unbanked and under-banked customers in low and middle-income economies are a $400 billion market, according to management consultant Accenture and of the $700 million new accounts opened in this category from 2011-14, 90 percent were in brick and mortar intermediaries with the remainder mobile-phone innovators. The bottom income category with deposits rose from 40 percent to 55 percent of the total over the period, but less than 5 percent were in mobile money, and the focus of the IIF-Accion survey is thus on retail commercial banks. Among well-known names with a long history are Turkey’s Isbank, South Africa’s Standard Bank, and Pakistan’s Habib Bank, and they combine business development with social responsibility mandates and target rural and remote households, informal entrepreneurs and women without credit scores. Kenyan and East European banks have insurance company partnerships, and ATM and e-money technology evolution are priorities. They try to compete with platforms like Peru’s BiM that can be accessed with cheap smart phones, the report points out.
Digital payments for government, business and personal purposes are used for processing and cross-selling, often through payroll advances to companies. However connectivity can be compromised by lagging infrastructure and power supply, and a big deterrent is the lack of trust in the automated chain. Banks have put agents in place to assure clients and ensure quality control, but turnover is a problem and the cultural preference for cash is strong throughout the developing world. Commercial banks can have dedicated microfinance divisions such as HSBC in India and Santander in Brazil, which has over 350,000 borrowers with an average loan of $800. Rural credit unions in China sponsor these schemes, and fintech firms have also entered the space upon launch. Data collection and analysis through proprietary programs are advancing rapidly, with Commercial Bank of Africa an example of an algorithmic approach for immediate approval of one-month facilities. Credit bureaus contribute to this information, but their output is often inadequate or missing for a real-time customer profile. Even with aggressive recruitment “dormancy” is an issue with 40 percent of South Asian adults not tapping their account for a year or more, or running it down to zero balance. According to a Global Financial Literacy study, only one-third of clients have proper understanding of savings alternatives, and banks have started their own public service efforts in addition to simplifying offerings. Reaching break-even level and profitability are long struggles, and even when the latter is accomplished it only lasts for 3-5 years until margin and scale squeezes. Policymakers can aid growth through less onerous identity and criminal reporting requirements, removal of interest rate restrictions, better data sharing protocols and improve regulator capacity. The Basel Committee could also ease capital rules for this limited high-risk activity, and regular official dialogue should also be private sector-inclusive, the report recommends.