How Banking Can Help Poor Countries
According to recent data issued by the World Bank, three-quarters of the world's poor do not have a bank account due to poverty as well as the expense, travel time, and amount of paperwork required to open an account. According to a 2011 poll of about 150,000 people in 148 countries, 25% of adults earning less than $2 per day had savings in a formal financial institution. According to statistics gathered by Gallup, Inc. for the World Bank's Global Financial Inclusion Database, the problem of being "unbanked" is also linked to wealth inequality: the richest 20% of individuals in developing nations are more than twice as likely to have a formal account as the poorest 20%. With 10-year funding from the Bill & Melinda Gates Foundation, the Development Research Group of the Bank is creating the database.
The study provides the most complete picture of how adults around the world borrow, pay back loans, manage risk, and manage savings. Around the world, 22% of adults say they have saved money in the last year with a professional financial institution. Compared to just 10% in wealthy nations, more than half of the population in developing nations does not have a bank account. "Providing financial services to the 2.5 billion 'unbanked' people could boost economic growth and opportunity for the world's poor," said Robert B. Zoellick, president of the World Bank Group. "Harnessing the power of financial services can help people to pay for schooling, save for a home, or start a small business that can provide jobs for others.
Only 43% of people with official bank accounts use them for saving money. According to the World Bank Global Financial Inclusion Database, or Global Findex, 61% of account holders worldwide use their accounts to receive income from a job, the government, or family members who live somewhere else. The unbanked population disproportionately consists of women. For instance, 46% of men and 37% of women in developing nations, respectively, have accounts. The difference is considerably greater for those who are poor: women are 28% less likely than men to have a bank account when they make less than $2 per day.
According to Melinda Gates, co-chair of the Gates Foundation, "financial instruments for savings, insurance, payments, and credit are a fundamental necessity for poor people, especially women, and can help families and whole communities raise themselves out of poverty." We can better understand how low-income households access and use financial services by using Global Findex.
Asli Demirguc-Kunt, director of development policy and chief economist of the Finance and Private Sector Network, and co-author of the report analyzing Global Findex data, claims that lacking a bank account frequently pushes savers to turn to riskier alternatives, such as storing money under the mattress. It becomes more difficult to accumulate reserves as well as use formal financial instruments like credit, insurance, and other complex ones, she claims. Additionally, the database lists the obstacles to financial inclusion. About two-thirds of those without bank accounts mention poverty as the main issue, but within that group, a third additionally points the finger at the expense of creating and maintaining an account or the difficulty of accessing a bank (which means long bus rides for many).
Leora Klapper, manager of the Global Findex and principal economist at the Development Research Group, states that "these restrictions may have proven to be excessive, especially considering that many people can only save away a very modest amount of money each month." The physical, administrative, and financial barriers to obtaining a bank account are particularly onerous for individuals who save informally, therefore policymakers should be aware of this.
Mobile money transfers are a type of nontraditional banking that is becoming more and more popular because they frequently don't require users to travel or have an account at a physical bank. In Sub-Saharan Africa, where traditional banking has been impeded by transportation and other infrastructural issues, such mobile banking has grown to 16% of the market. It enables account holders to pay bills, make deposits, or perform other transactions using a text message. Particularly in Kenya, where 68% of individuals use a cell phone for financial transactions, this business has shown significant growth.
The widespread adoption of informal savings methods shows that the market has lost an opportunity to offer secure, reasonably priced financial products to the unbanked. Adults who don't utilize banks or other official financial organizations, for instance, frequently use quite complex techniques to handle their funds, such as credit associations or rotating savings clubs. These clubs gather deposits from members each week and distribute the whole amount to a chosen member. In Sub-Saharan Africa, where 48% of savers use an informal savings club or someone outside the family to save, the practice is very prevalent. 69% of adult savers in Nigeria use the clubs, also called Jesus, Ajo, cha, or Tadashi.
Adults in poor nations rarely manage risk with formal financial instruments. In developing nations, more than 11% of individuals have an unpaid debt for an emergency or medical expense, while more than 80% of these adults solely use informal sources of credit. Only 6% of adults in developing nations who work in agriculture, forestry, or fishing are insured for crops, animals, or natural disasters. You may get the survey questionnaires, which are accessible in 15 languages, here. The World Bank encourages nations to incorporate the questions into censuses or other national surveys to get additional information about financial inclusion.
