25 June 2020

WRITER: Meredith Booth

UniSA’s Centre for Applied Finance and Economics reveals links between financial inclusion and reducing poverty in ASEAN and East Asian nations.


Financial inclusion is a known enabler for reducing poverty and boosting prosperity,
yet more than half the world’s adult population still don’t have access to basic financial services.


Access to appropriate financial products and services lets people make and receive reliable payments, helps them access credit and, importantly, helps them to save. By influencing policy makers and financial institutions, we can elicit change that ensures economic and social wellbeing for all.

Most Australians would view access to money via a bank account, credit card or mobile phone as basic tools to allow their daily lives to function.

But for many people in Southeast Asia, access to financial services is prohibited by poverty, rural isolation, and distrust of banks, as well as the traditional handling of family finances by men.

International macroeconomics and finance expert UniSA Associate Professor Tony Cavoli, says regularly using a bank account or having access to mobile money, can be a significant factor in reducing poverty and gender inequality, particularly in developing countries.

Financial inclusion is all about ensuring every individual has access to appropriate and affordable financial services and products, regardless of their income or situation.

It’s a known enabler to reduce poverty and boost prosperity, yet ironically, more than half the world’s adult population still don’t have access to basic financial services.

Access to appropriate financial products and services lets people make and receive reliable payments, helps them access credit for investment; and, importantly, helps them to save.

Assoc Prof Cavoli is leading a multi-institutional project, funded by the Economic Research Institute for ASEAN and East Asia (ERIA), to influence policy makers to improve financial inclusion in 16 countries.

ERIA, an 11-year-old think tank touted as the East Asian version of the Organisation for Economic Co-operation and Development (OECD), has a mission to deepen economic integration, narrow development gaps and bring sustainable development to the region.

Countries included in ERIA’s remit are the 10 Association of Southeast Asian Nations (ASEAN) countries – Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam – plus its six free trade agreement partners, China, Japan, India, South Korea, Australia and New Zealand.

Assoc Prof Cavoli’s preliminary report: Understanding the economic benefits of financial inclusion for ASEAN and East Asia, shows financial inclusion supports at least seven of the United Nations’ 17 sustainable development goals by ending extreme poverty, reducing hunger, improving health, promoting gender equality, creating business innovation, reducing economic inequality and prompting economic growth.

Much of what’s written about financial inclusion is how to measure it, and the possible determinants – but, what’s less explored is the effect of financial inclusion and its impacts on living standards, health, education, poverty and gender equality.

“That’s what we’ve focused on in this study – the robust and positive relationship between financial inclusion and development outcomes such as educational attainment, life expectancy and poverty reduction.”

What’s the current situation?

More attention on financial inclusion has led to an increased demand for regulators to produce policies that support financial inclusion.

Around the world, rates of financial inclusion vary greatly due to different levels of access, usage, and quality. According to the World Bank, 51 per cent of countries have a national financial inclusion strategy in place or in development, with 71 nations having policies that relate to financial education or financial capability.

Financial technology (FinTech) is a major factor contributing to increased access of financial services via mobile payments, peer-to-peer borrowing, and lending.

“In the same way that the internet and mobile communications have paved the way for greater levels of access, FinTech should also lead to higher levels of financial inclusion,” Assoc Prof Cavoli says.

“Our research shows that only 25 per cent of people use a mobile phone to access a bank account, only 22 per cent use the internet to pay bills, and the take-up for mobile money services (a technology that allows people to receive, store and spend money using a mobile phone) is only four per cent – which is still very low.

“And, while the global percentage of adults with a bank account has grown from 51 per to 69 per cent in the six years to 2017, there are still many people in Asia and Africa without bank accounts. Certainly, there’s still a lot of room for improvement.”

So how does this influence policy?

ERIA economist and contributor to the UniSA report Rashesh Shrestha, says globalisation has led many developing countries to higher levels of income, but it also has increased economic inequality, which has been rising in Southeast Asian countries in the past 15 years.

Based on the latest available estimates, economic inequality in Southeast Asia lies toward the middle of the world distribution, behind Latin America and sub-Saharan Africa, Shrestha says in a 2018 Jakarta Post opinion piece.

Based in Jakarta, Dr Shrestha says more can be done to inform policy makers on increasing financial inclusion in Indonesia.

“We want to provide policy makers with information about the sorts of benefits that lowering poverty and increasing savings can deliver,’’ Dr Shrestha says.

“Through this report, we hope to provide banks with right the information to design and provide services and products that truly serve the needs of the poor.’’

Gaining traction in Indonesia was
the basic TabunganKu savings bank accounts offered by several banks and aimed at college students to increase financial inclusion and encourage
savings behaviour.

More than 12 million TabunganKu accounts were opened in the first four years of the program to April 2014, targeting about 140 million Indonesian adults who were ‘unbanked’ at the time.

Dr Shrestha says no-frills products like these savings accounts were delivered in conjunction with financial literacy education and protection.

“The government wants people to have a better understanding of products and be well-informed on how they can use them and maximise the benefits,’’ he says.

Assoc Prof Cavoli says other government-led projects have also attempted to increase the number of bank account holders in the region.

In India, financial inclusion via access to bank accounts has been a joint focus for both the Reserve Bank of India and the Government of India, with initiatives resulting in almost 80 per cent of the population owning an account. On the surface, this seems successful, yet dig deeper and many of the accounts are dormant – only half have been used in the past 90 days.

“If a policy goal is to pay transfers such as social security and health insurance payments through to households via bank accounts, it can be done more easily through these government driven initiatives,’’ Assoc Prof Cavoli says.

“But the challenge remains to educate people about the benefits of such financial products, so they actually use them.

“An active bank account lowers the propensity to be in poverty by around four per cent. But, clearly, there is still work to be done in India.”

Other countries, like Bangladesh are choosing not to rely on traditional delivery of banking services, instead exploring non-bank services such as mobile money and e-money.

According to the 2019 Global Digital Report, 94 per cent of Bangladeshis have a mobile subscription (157.2 million) while 55 per cent of the population (92 million) have internet access. This compares with 130 mobile subscriptions for every 100 people in Australia (many have more than one mobile account) and 87 per cent with internet connections.

“The take-up for Bangladesh (in mobile money accounts) is materially higher than for all other countries examined,’’ Assoc Prof Cavoli says.

“We can also assume that some poorer countries perhaps have less trust in the banking system and are consequently seeking solutions outside of existing traditional banking channels, possibly through informal financial services, or processing remittances from overseas.’’

In Cambodia, a 2015 study of 3150 adults showed that use of financial services is very likely to make a great contribution to poverty reduction.

“Our research shows that improving people’s financial literacy – even basic financial knowledge – could have a positive effect on households and help to reduce household budget deficits,’’ Assoc Prof Cavoli says

In India and Bangladesh there are clear gender gaps in financial inclusion – thanks to the long-standing cultural traditions of men controlling household finances.

But improving financial literacy, particularly among women, can close
the gap.

There is evidence to suggest that household income increases with the use of financial services, especially where the household is headed by women with financial literacy.

Among the quirks of different countries and their financial systems were some rural communities with higher-than-expected levels of internet use – suggesting that digital technologies may help communities leapfrog the more traditional ways of financial inclusion.

The biggest barrier to financial inclusion, however, remains household income, Assoc Prof Cavoli says.

“Regardless of how financial inclusion manifests itself – through the promotion
of financial technologies, or through
policy and regulation – it’s difficult to access the financial system if you’re poor and don’t have the funds to save, or to help you borrow.”

Identifying these gaps provides opportunities for regulators and policymakers to develop tailored financial inclusion strategies that meet the specific needs of communities in need.

“The lowest levels of financial inclusion are predominantly seen in poorer groups, in those less educated, and in rural populations, which is often in line with the development status of the country,” Assoc Prof Cavoli says.

“As such, most countries in the region have national financial inclusion strategies either in place, or in development. Many also have policies attempting to increase levels of financial literacy and financial education as a way for households and firms to more effective access their respective financial systems.”

He says that governments and policymakers understand this relationship.

“Policies that increase the extent of financial inclusion may contribute to more desirable development outcomes.

“By allowing greater and more efficient opportunities to save, borrow and spend – policymakers, regulators, financial and global institutions have the capacity to empower households and firms to pursue and achieve significant gains in economic and social wellbeing.”   

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