Financial inclusion not only helps countries thrive economically but also increases individual well-being and income. Projects and programs aimed at integrating marginalized groups into financial institutions are a global necessity in order to improve long-term progress. South Asian economies are primarily developing countries plagued by poverty, exclusion, and underdevelopment. While Southeast Asia’s economy has advanced significantly in the last decade, more than six in ten Southeast Asians are still underbanked or unbanked today (Cull, Demirgüç-Kunt, & Morduch, 2021). Providing affordable financial services to disadvantaged and low-income segments of society remains a challenge throughout South Asia.
Approximately 50% of the adult population in South Asia does not use formal financial services, compared to only 6% in high-income countries (Cull, Demirgüç-Kunt, & Morduch, 2021). Being the most densely populated region in the world and the home to one-fifth of the global population, South Asia has a long history of robust economic growth, and is one of the world’s fastest-growing regions. Despite the region’s rapid growth, poverty remains widespread. Many countries face severe forms of social exclusion, infrastructure gaps, and extreme inequality (Hasina, 2003). This region has the most working-age people and a quarter of the world’s middle-class consumers (Tin, 2006). Thus, South Asia’s growth is likely to alter the global poverty scenario (The World Bank, 2016). This discussion indicates a need to take urgent measures to improve financial inclusion.
Financial inclusion across South Asian Economies
As opposed to 89 percent in high-income economies, the South Asian region has a lower bank account penetration rate of 33 percent. Country-by-country analysis reveals an even more concerning situation (Kelegama & Tilakaratna, 2021). The percentage of adults with ‘At least one account with bank FIs’ shows that Afghanistan and Pakistan are highly unbanked countries, with only 10% and 13% of people in these countries having a formal account with any bank or financial institution, respectively. Sri Lanka is close to connecting its whole population with the formal banking system, with 83 percent of people having bank accounts. An average of 50% of adults have accounts with formal financial institutions (Kelegama & Tilakaratna, 2021).
South Asian countries have a reasonable penetration of mobile phones or the internet at home, with all countries having a penetration rate of more than 75%. Despite the widespread access, the use of these services for financial transactions is extremely low. The number of ATMs per 100,000 adults is moderate in Bhutan, India, and Sri Lanka, where it is close to 20%. Only eight to nine ATMs are available for a hundred thousand adults in Bangladesh, Nepal, and Pakistan. In Afghanistan, the availability of ATMs is almost negligible. The situation is similar in terms of bank branch availability (Kelegama & Tilakaratna, 2021).
Financial Inclusion Policies across South Asian Economies
The Money Service Providers Regulation was issued in Afghanistan in 2008, allowing electronic money transfer services. Additionally, Afghanistan’s central bank established a Financial Inclusion department in June 2016 with the goal of carrying out the country’s financial inclusion strategy (Lewis, Villasenor, & West, 2017). On similar lines, Bangladesh Bank established a department for financial inclusion in 2015. This helped to raise financial literacy and the advancement of female entrepreneurs. To further boost inclusivity, mobile financial services were also launched (Islam & Mameen, 2021; Khalily, Miah, Hasan, & Akter, 2022).
The Indian government is explicitly concerned about inclusive growth and has been a founding member of the Alliance for Financial Inclusion (AFI) since 2012. As part of the Pradhan Mantri Jan-Dhan Yojana, approximately 220 million bank accounts have been opened in just 20 months, providing a significant boost to financial inclusion (Nayak, 2016). Paving a path of successful financial inclusion, the Nepalese government has already achieved 80% financial inclusion in terms of access to financial services and products (Islam & Mameen, 2021; Khalily, Miah, Hasan, & Akter, 2022). The government has adopted a liberal licensing policy to encourage the establishment of microfinance financial institutions in underserved areas. Banks must open branches in villages before expanding into urban areas. The government also makes interest-free loans to banks and financial institutions to encourage the same.
In 2011, Bhutan also drafted a financial inclusion policy. The government is running a financial literacy program with funds and support from the Asian Development Bank (Khan, 2016). Regulatory bodies in Sri Lanka have also taken various measures to promote financial inclusion, like mandating the provision of 10% of total credit to the agricultural sector, upgrading post offices to provide banking services, and establishing Lanka Clear, a national cheque clearing house and interbank payment system (Kelegama & Tilakaratna, 2021).
How far have these policies been successful?
South Asia’s financial inclusion progress is marginal when compared to other parts of the world. Gender bias is prevalent and widespread in most countries because male users outnumber female users. The gender gap has grown in recent years, which should be of concern to policymakers. (Islam & Mameen, 2021; Khalily, Miah, Hasan, & Akter, 2022). For economic and financial growth in this region, mobile technology and the Internet need to be promoted to improve financial inclusion.
Bhutan and Nepal, two mountainous countries with tough terrains, could increase financial inclusion by using mobile technology. Microfinance Institutions (MFIs) dominate Bangladesh, providing financial services to a large portion of the population. Bangladesh could capitalize on this opportunity by expanding the breadth and depth of financial services and products. Banking services, debit and credit card use, bank borrowing, and savings deposits and E-banking are all at low levels. Due to its large population, India can make a significant effort on all fronts, including mobile technology, the internet, financial education, and gender gap reduction. The financial sector in Sri Lanka is largely inclusive, but there are gender differences in the use of services and products. Hence, the country should increase financial inclusion among its female population.
South Asia’s economic growth is critical to the global economy, therefore financial inclusion is extremely vital for the region. Policymakers should prioritize the development of technological infrastructure and amenities that contribute to the elimination of opacity and information asymmetry in credit supply. Even though many such initiatives are being launched around the world to promote this, South Asia has a long way to go before achieving its dream of complete financial inclusion.
Mansi Agarwal is a second-year student of Economics at Indraprastha College for Women.
References
- Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2021). Banking the world: Empirical foundations of financial inclusion. Cambridge, MA and London, UK: MIT Press.
- Hasina, S. (2003). Human development, poverty alleviation and peace in South Asia. South Asian Survey, 10(1), 5–11.
- How to close Southeast Asia’s financial inclusion gap. (n.d.). Retrieved February 27, 2023 from https://www.weforum.org/agenda/2022/02/closing-southeast-asia-s-financial-inclusion-gap/.
- Islam, E., & Mameen, S. A. (2021). Financial inclusion: The role of Bangladesh bank (Working Paper Series: WP1101). Dhaka: Research Department, Bangladesh Bank.
- Kelegama, S., & Tilakaratna, G. (2021). Financial inclusion, regulation, and education in Sri Lanka (ADBI Working Paper No.504). Tokyo: Asian Development Bank Institute.
- Khan, I. (2016). Pakistan’s gender gap in financial inclusion. Consultive Group to Assist the Poor [Web log post]. Retrieved 18 February, 2023 from http://www.cgap.org/blog/pakistan%u2019sgender-gap-financial-inclusion.
- Lewis, R. J., Villasenor, J. D., & West, D. M. (2017). The 2017 Brookings financial and digital inclusion project report. Washington, DC: Centre for Technology Innovation at Brookings.
- Nayak, G. (2016). Financial inclusion gets a boost with Jan Dhan Yojana. The Economic Times, ET Bureau, Delhi. Retrieved 12 February, 2023 from https://economictimes.indiatimes.com/industry/banking/finance/banking/financial-inclusion-gets-a-boost-with-jan-dhanyojana/articleshow/52214010.cms
- The World Bank. (2016). World Bank report on global economic prospects: Divergences and risks. Washington DC: The World Bank. Retrieved 11 February, 2023 from http://www. worldbank.org/en/publication/global-economic-prospects.
- Tin, U. N. (2006). Building of all-round development in the region: Cooperation to integration. South Asian Survey, 13(2), 303–312.
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