Financial institutions in Asia need to do more to provide services to poorer workers and business people, Tilman Ehrbeck, chief executive officer of the Consultative Group to Assist the Poor, said yesterday.
“We need to ensure we are reaching more people in more places at a lower cost,” Ehrbeck told Emerging Markets.
“Poorer Asian households need access to a broad range of financial services including savings accounts, payments systems and private insurance. They have less income to begin with and that income is often highly irregular, so they need more options than the rest of us.”
Different financial products work better in some countries than others. Micro credit, which often goes with innovation, first found its feet in Bangladesh is a highly entrepreneurial country where millions of mostly rural workers own their own small-scale enterprise.
The key to the success of micro credit, Ehrbeck said, is the process of social collateral: giving groups of workers a joint liability loan. “When you have no assets, micro credit tends to only works, if you are at the bottom of the social pyramid and living in South Asia, if you take out a joint contract.
“This means that everyone is responsible for the repayment of the loan, creating a binding social contract that villagers, most of whom know each other, are loath to break.”
Micro-insurance in turn was quick to catch on in India, where there is demand among business owners for insurance against crop or machine failure, for example.
India recently launched a renewed effort to roll out banking services to millions of poorer workers, particularly in third- and fourth-tier cities. The government plans to issue between four and six new banking licenses to corporates this year.
“In this context financial inclusion means allowing the small company owner to invest wisely”, Ehrbeck said. “If I take out a micro insurance policy and my cow dies, I get my money back. If I have access to a weather insurance product to protect my harvest, I can ensure that I don’t starve [if my crop is washed away]. The benefits here are immediate and manifold.”
In the Philippines, working women, many of whom do menial work overseas, have been offered the chance to remit cash to their families over their mobile phones.
CGAP, an independent policy and research body affiliated to the World Bank Group, focuses on financial inclusion – nowhere more so than in Asia, where two-thirds of the estimated 2.7 billion people who do not have a credit or savings account live. In most wealthy nations, more than 90% of people have access to a bank account. In Asia, that number falls to between 40% and 50%.