Low-income populations benefit the most from technological innovations such as mobile payments, mobile banking, and borrower identification based on fingerprinting and iris scans, according to a new World Bank Group report.
That’s because those innovations make financial services cheaper and easier to access for the poor, women, and rural residents, especially those living in remote, less populated regions without brick-and-mortar bank branches, according to the report, Global Financial Development Report 2014: Financial Inclusion.
“Financial services are out of many people’s reach because market and government failures pushed the costs of these services to prohibitively high levels,” said World Bank Director of Research Asli Demirguc-Kunt, a co-author of the report. “Vulnerable populations benefit the most when policy and products address the regulatory and other hurdles to financial inclusion.”
The report, the second in a series, is the most comprehensive study yet on financial inclusion, a topic that has gained worldwide attention. More than 50 countries have committed to explicit targets to increase financial inclusion. And last month, World Bank Group President Jim Yong Kim set targets toward universal financial access for all working-age adults by 2020.
Many countries have made progress in expanding account use among those underserved by traditional financial institutions. Some policies have proven to be especially effective, such as requiring banks to offer low-fee accounts, waiving onerous documentation requirements, and using electronic payments to deposit government assistance into bank accounts. For example, South Africa, with a public-private framework, increased the number of bank accounts by six million in four years.
Technological innovations, which have grown rapidly in the past decade, can speed up the progress. Mobile banking has played a key role in expanding financial inclusion in low-income countries, such as Kenya, the Philippines, and Tanzania. Brazil increased financial access to people living in remote areas by promoting technology-based “correspondent banking” – financial services provided on behalf of banks by retails stores, gas stations, agents on motorcycles, and boats on the Amazon River.
To allow consumers to take full advantage of those innovations, also including e-mobile wallets and other e-money accounts, the report recommends that regulators encourage competition among financial service providers and improve the legal, regulatory and institutional environment. That will also minimize the chance that credit is overextended among people not qualified to receive it.
“Policy makers need to strike a balance between providing incentives for the new technologies and requiring them to be open to competition,” said Martin Cihak, lead author of the report and lead economist in the World Bank’s research department. “Competition policy is a key part of consumer protection, because healthy competition among providers gives more power to consumers.” Complete_Report world bank financial inclusion report
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