Sharp drop in ranks of the unbanked

Two billion people remain unbanked, with more than half of adults in the poorest 40 per cent of households in developing countries having no access to financial services

Nearly three-quarters of a billion people opened bank accounts for the first time from 2011 to 2014, gaining access to global financial systems in a step experts say is key to tackling extreme poverty.

The Global Findex 2014, produced by the World Bank, found that 62 per cent of adults worldwide now have access to a financial institute or mobile money services, up from 51 per cent in 2011.

“The survey shows great progress in expanding financial inclusion around the world,” the report said. “[This] has been broadly recognised as critical in reducing poverty and achieving inclusive economic growth. But large gaps remain. Many people around the world, particularly women and poorer adults, still do not have an account.”

Two billion people remain “unbanked”, with more than half of adults in the poorest 40 per cent of households in developing countries having no access to financial services. The Middle East is the worst affected region - only 14 per cent of adults have access to the financial system, compared with 62 per cent worldwide.

“Of the 2 billion unbanked, about 85 million live in the Middle East,” said Leora Klapper, a lead economist in the Development Research Group at the World Bank. “Eleven per cent of adults in the region had an account in 2011,” but that has increased by three per cent to 2014.

Mobile technology, which offers people access to virtual bank accounts through their cellphone, could play a critical role in expanding financial inclusion.

In Sub-Saharan Africa, 12 per cent of adults – or 64 million people – have mobile money accounts. In five lower-income nations - Cote D’Ivoire, Somalia, Uganda, Tanzania and Zimbabwe - more adults have a mobile money account than have a bank account.

“In sub-Saharan Africa is that we are starting to see the promise of mobile technology,” said Klapper. Accounts are usually provided by a mobile phone company, and allow people to deposit and withdraw money at local agents. “The beauty of it is although there may not be bank branch in your local village, there’s likely to be a mobile phone agent,” Klapper added.

Although the Middle East was the only region not to see double-digit growth in financial inclusion, mobile technology combined with financial innovation could bolster account penetration.

“In Egypt we saw an increase in account penetration from 10 per cent in 2011, to 14 per cent in 2014. But, for instance in Egypt and Lebanon, we find 1 per cent of adults reporting using a mobile money account,” said Klapper. “We hope it’s the tip of the iceberg and this number will grow.”

Technology’s impact is not just seen in the adoption of mobile money services, but also in the digitisation of money transfers, whether for wages, school fees, or bill payments. While consumers can access these services through simple mobile phones, via SMS messaging, it is innovation in the behind-the-scenes connections to banks and other financial institutions that is driving progress. It is through this channel that the next big step in improving financial engagement is likely to be felt.

Of the 85 million unbanked in the Middle East, 5 per cent of those adults currently receive government money in cash, while an estimated 7 per cent still receive private sector wages in cash, according to the World Bank.

“There are half a billion adults, with accounts, paying fees in cash,” said Klapper. “Digitising both wages and government transfers would be tremendous. From the sender’s perspective it makes it cheaper to make payments, improves transparency and reduces leakage.

“From the recipient side, especially women, it is really important that rather than coming home with cash, money is going to an account where you get more privacy and control.”

Addressing the gender gap in financial inclusion has also become increasingly important, as data show it is widening in the Middle East, despite gains for both sexes. In 2011 15 per cent of men had accounts of some kind, compared to 7 per cent of women. By 2014, this gap had widened to 10 percentage points.

“Having a safe place to store your money outside the home is not just about convenience,” said Klapper. “For something like paying school fees, often women have to take time off work and lose wages to travel to pay school fees. Being able to make an electronic payment can save time and money.”

The Global Findex Survey was based on interviews with 150,000 adults in 143 countries, including the Middle East and North Africa.

Photo credit: UN Capital Development Fund