Financial inclusion in developing countries: the alarm bells should be ringing for banks

by 01st Jul 2015
A member of a Village Savings and Loan Associations in Haiti holding her member's card A member of a Village Savings and Loan Associations in Haiti holding her member's card

At a session on financial inclusion at the European Development Days event last month, I gave a brief talk about research that CARE and Accenture are jointly conducting on the capabilities for financial inclusion of banks in developing countries. We have now looked in some detail at 30 banks in 12 countries, and compared them to a Financial Inclusion Maturity Model which we have developed. We will be publishing a summary of our research later this summer – but our first high level findings should be ringing alarm bells for banks in developing countries.

We have found that many banks are developing the capabilities that will allow them to service the previously remote and high-cost financial inclusion market, including mobile phone based access, payment cards, agent networks and savings groups. Now, most banks are developing these capabilities to service their mass affluent and SME markets, and relatively few of the banks we spoke to are targeting the ‘bottom of the pyramid’ customers that universal access to financial services requires.

Given the substantial investments banks have been making in these capabilities, and the returns to scale available in this sector, we would anticipate that increasing numbers of banks will attempt to sweat their assets and reach much larger segments of the population with this infrastructure. Indeed a small number of banks are using these same capabilities to start to make a profit from very low-income customers.

The strategic opportunity for banks is enormous: 2 billion unbanked people, 320 million unbanked or underbanked micro and small businesses, and a total credit gap to micro, small and medium enterprises (MSMEs) globally at $2.1-2.6 trillion. And the importance of this opportunity was supported by my fellow panellist, Matt Wilson of Barclays.

Barclays have partnered with CARE International and Plan over the last few years in Banking on Change, which has included a programme of linking savings and loans groups to Barclays and to other banks, to ensure cost-effective formal financial services for group members, who live on under $2 a day, and of whom 75% are women.

This originated in the Community Investment work of Barclays in a number of African countries. What was striking however was Matt’s tale of how this group linkage programme is starting to be taken over by the retail management in the relevant countries. They have become convinced by the size of the opportunity to find new customers, and to service them cost-effectively via groups, generating a real win-win.

The CARE and Accenture analysis has shown that the capabilities are in place in many banks and that some are already targeting the bottom of the pyramid. And even a large international bank like Barclays, based on substantial practical experience of working with savings and loan groups, can see how even the poorest can save, can access formal financial services and can be a significant revenue stream.

So if you are a bank executive and you are not currently thinking through your strategy on reaching even the poorest and most remote citizens, then now is the time to start worrying.

Gerry Boyle

I lead CARE International UK’s policy analysis and advocacy around value chains and dignified work. I originally joined CARE as the Senior Policy Adviser on Private Sector Engagement. With the advent of our new Global Programme Strategy which put a particular emphasis on women’s economic empowerment, my focus changed a little, although I still work extensively with issues in the private sector and with CARE’s corporate partners.

Until recently I spent a lot of my time on financial inclusion, now looked after by my colleague Fiona Jarden. I also co-chair the Bond Private Sector Working Group.  Immediately before I joined CARE I worked for Oxfam as Head of Business Relations for about three years, but the vast majority of my career was spent as a management consultant including being a consulting Partner at Deloitte, where for a time I led Deloitte UK’s Consumer Business consulting practice, serving many major multinationals. My original degree was in Law from Oxford University, and in 2008 when I left Deloitte I did an MSc in Philosophy and Public Policy at LSE.

One good thing I've read

Amartya Sen’s Development as Freedom. It provides a framework for many people’s modern understanding of what is development, based on a profoundly human-centred approach rather than anything instrumental. And to check whether one personally is doing enough to fight poverty, I recommend Peter Singer’s The life you can save: Acting now to end world poverty – it’s very clear and easy to read but very challenging! Finally, Ha-Joon Chang’s Bad Samaritans: Rich nations, poor policies, and the threat to the developing world is a very readable guide to economic development which argues strongly against many of the prevailing orthodoxies.

Email: boyle@careinternational.org

Twitter: @gerryboyle10