Bridging the gap
How financial inclusion can create income equality in Asia
Over the last several decades, Asia has gradually emerged as an engine for growth. From the Japanese economic miracle post World War II to China’s economic emergence in the early 2000s, the region has experienced incredible change. According to the Asian Development Bank (ADB), Asia-Pacific’s share of global gross domestic product (GDP) increased from just 12.7% in 1960 to around 31% at the end of 2015.
Sure, there have been several hiccups in the Asian growth story, such as the Asian financial crisis in the late 1990s, and the global financial crisis, however, the region is predicted to be a beacon of opportunity supported by the large, growing economies of China and India.
Wealth has also been growing rapidly in the region. Capgemini’s recent World Wealth Report states that the total wealth of Asia-Pacific’s high net worth individuals (HNWIs) has grown from US$10.82 trillion in 2010 to US$17.39 trillion in 2015. Within Asia, Chinese HNWIs saw their wealth increase from US$2.3 billion in 2009 to US$5.3 billion in 2015.
Yet despite the unprecedented economic growth and wealth generation within the region some of the poorest members of Asian society have been left-out of the economic prosperity. India’s richest 1% hold 58% of the country’s wealth, a study from Oxfam revealed earlier this year. Moreover, a recent Peking University study discovered that 25% of Chinese households hold just 1% of the country’s total wealth.
One proposed way to reduce income inequality has been through financial inclusion. The World Bank estimates that 2 billion adults worldwide do not have a basic bank account. Barriers to account opening include surmountable obstacles such as the geographical distance to a financial services provider or the lack of necessary documentation papers.
Increase in financial inclusion schemes leads to better access to affordable financial services, eventually leading to better long-term goal planning for a family unit.
Since 2010, more than 55 countries have made commitments to financial inclusion with more than 30 countries either launching or developing a national strategy. The Philippines has been one of the many nations pushing for better financial inclusion.
The country’s central bank, the BSP (Bangko Sentral ng Pilipinas), hinted earlier this year that it was drafting legislation to relax fee and paperwork requirements for opening a standard bank account. The BSP has encouraged the growth of micro-banking offices and has seen a 93% increase in micro-banking offices from June 2012 to June 2016.
In Singapore, the Monetary Authority of Singapore inked a deal with the United National Capital Development Fund on the digitization of low-tier financial institutions in the region, with a focus on the final leg of financial services distribution.
With the onset of savvier financial technologies, users from low-income segments are now getting the chance to access financial services that were once out of reach. From cashless payments to P2P (peer-to-peer) lending, companies are sprouting up around the world aiming to promote financial inclusion.
Looking to nurture the growth of these companies, organizations such as the ADB have started to support these companies. This March the ADB invested US$32 million in CreditAccess Asia, an Amsterdam-based company that operates microfinance entities in South and Southeast Asia.
A key driver for digital financial inclusion will undoubtedly involve the telecommunications companies. While a significant portion of world’s population is unbanked, around 4.7 billion, or almost two-thirds of the world’s population, subscribe to some form of mobile service. This is likely to increase once 5G networks are established.
With an abundance of mobile users forecasted in the future, this may present the best platform to reach out to the financially underserved communities who traditionally relied on brick and mortar institutions for financial services. Already some telecoms companies are capitalizing on the opportunity.
In the Asian frontier market of Myanmar, Telenor, a Norwegian multinational telecom company, along with local institution Yoma Bank, jointly founded Wave Money, a service that allows users to transfer money to each other or local shop agents via a mobile device. This is similar to the Kenya’s M-Pesa mobile money transfer system created by Vodafone in 2007. Likewise Philippine-based Lendr, supported by Philippine telecom company PLDT, allows users to file their loan applications from their mobile phones. The company has dispensed more than US$306 million in loans over the past 24 months.
While the drive for financial inclusion has a long way to go it is clear that tools are being developed by various parties to ensure that all segments in society are able to partake in Asia’s future growth story.