Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
Access to a transaction account is a first step toward broader financial inclusion since it allows people to store money, and send and receive.
Financial access facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies.
As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives.
- Formal and informal micro, small and medium-sized enterprises (MSMEs) in emerging economies lack adequate financing to thrive and grow.
- MSMEs cite a lack of collateral and credit history, and business informality as main reasons for not having an account.
- Some groups are more financially excluded than others: Women, rural poor, and other remote or hard-to-reach populations, as well as informal micro and small firms are most affected.
For example, the gender gap in developing countries is estimated at around 10% percentage points: Almost 60% of men reported having an account in 2015, while only about 40% of women did.
- Our research indicates that when countries institute a national financial inclusion strategy, they increase the pace and impact of reforms.
Countries that have achieved the most progress toward financial inclusion have put in place an enabling regulatory and policy environment, and have encouraged competition allowing banks and non-banks to innovate and expand access to financial services.
However, creating this innovative and competitive space has to be accompanied by appropriate consumer protection measures and regulations to ensure responsible provision of financial services.
Digital financial technology, or “fintech,” and particularly the global spread of mobile phones, has facilitated expanding access to financial services to hard-to-reach populations and small businesses at low cost and risk:
- Digital IDs make it easier than ever before to open an account
- Digitization of cash-payments is introducing more people to transaction accounts
- Mobile-based financial services bring convenient access even to remote areas
- Greater availability of customer data allows providers to design digital financial products that better fit the needs of unbanked individuals
As our country has accelerated efforts toward financial inclusion, it has become apparent that it faces similar hurdles which impede its progress. These include:
- Ensure financial access and services extend to hard-to-reach populations, including women and the rural poor
- Increase citizens’ financial literacy and capability so they understand different financial services and products
- Make sure everyone has valid identification documents, and a low-cost, accessible means for them to be authenticated
- Devise useful and relevant financial products, tailored to consumer needs
- Establish robust financial consumer protection frameworks, and adapt relevant regulatory and supervisory authorities, including by utilizing technology to improve supervision (so-called “regtech”)
- Globally, a lack of IDs makes it hard to open a bank account, access capital and credit.
The main messages which emerge from this effort to assess poverty in Tanzania are both encouraging and sobering;although the data show that the share of the population in extreme poverty did decline, major poverty challenges still remain, especially in light of the country’s rapid population growth since 1960s.
It is argued that the poverty rate may have declined even more if the quality and comparability of the underlying data are taken into consideration.
However, because of population growth many more people are poor. The most optimistic scenario shows that poverty reduction has been slowest in our fragile country, it is also noted, and rural areas remain much poorer, although the urban-rural gap has narrowed.
Other key findings are:
- Nonmonetary dimensions of poverty have been improving, but the challenges remain enormous. Compared with 1995, adult literacy rates are up by four percentage points and the gender gap is shrinking.
- Newborns can expect to live six years longer and the prevalence of chronic malnutrition among under five-year-olds is down six percentage points to 30%presumably.
At the same time, despite substantial improvement in school enrollment, the quality of schooling is often low and more than two in five adults are still illiterate.
- Reinvigorating Tanzania’s primary educational achievements is urgent. Paradoxically, citizens in resource-rich country similarly have worse outcomes in human welfare indicators, conditional on income. This finding underscores that while economic growth is critical for poverty reduction, it is not sufficient.
The picture on indigenous African inequality is complex. “Seven of the 10 most unequal countries in the world are in Africa, most of them in southern Africa.” Excluding these countries and controlling for GDP levels, inequality is not higher in Africa than elsewhere in the world.
The household survey data do not reveal a systematic increase in inequality across the country in Tanzania or the continent as a whole. But the number of extremely wealthy Africans is increasing slowly but surely.
Differences between urban and rural areas and across regions are large. Intergenerational mobility in education and occupation has improved, but remains low.
It is always useful to strengthen Tanzania’s poverty data.While the availability, comparability and quality of data to track non-monetary poverty has improved, “in2012,25 of Sub-Saharan Africa’s 48 countries had conducted at least two household surveysoverthe past decade to track monetary poverty”, and many of these surveys are not comparable over time.
The World Bank and its partners announced“stronger support to complete household-level surveys every three years in the world’s poorest countries, including several in Africa, to address huge data gaps that have previously stunted poverty-fighting efforts”.
Better data will make for better decisions and better lives;it is not just about quantity, the quality of the data also matters. There are examples of missed opportunities when surveys are not conducted with quality standards. Maintaining and accelerating the momentum of progress of the past two decades requires collective efforts.
Malaysia; for example has achieved one of the highest levels of financial inclusion among developing countries, due in part to policies taking advantage of mobile phones and banking agents to expand access.
The report looks at specific actions, programs, and strategies that have contributed to enhance financial inclusion in Malaysia and highlights key learning’s to benefit low- and middle-income countries with similar ambitions.
The report also notes that there is no single factor that can explain Malaysia's success in financial inclusion. The progress that Malaysia has achieved is the result of efforts undertaken by authorities and the financial sector industry over the past 20 years.
The country has been able to achieve sustainable growth of its financial system over a long period of time especially under the current 5th phase government administered by President Magufuli, reconciling two policy objectives, namely "financial stability" and "financial inclusion", in a successful manner so far.
Malaysia faces two main challenges in terms of financial inclusion. First Malaysia will need to reach out to the remaining under-served population. Secondly, a major challenge is how to ensure that the people with access to financial services actually make active use of their accounts. Nevertheless the assignment has been well-accomplished for our country to follow suit.
Global economic recovery, however, remains fragile, susceptible to downside risks, and more uneven across country groupings: with stronger recovery anticipated for the US and Japan than for the EU, and return to robust growth (although still below the pre-crisis levels) in the large emerging markets.
Against the backdrop of subdued external demand subject to significant downside risks and a domestic investment climate weakened in particular by labour strife, corruption or medium-term growth prospects for Tanzania have been revised down.
The slowdown has put into sharper focus the key structural challenges facing Tanzania in its quest to achieve higher and more inclusive growth.
Among them is the expansion of access to financial services for both individuals and small enterprises, which could help reduce poverty and inequality and stimulate job creation in Tanzania.
There are about12 million or more unbanked people in Tanzania and the phenomenon of financial exclusion extends to millions more who are under-banked. This is despite the fact that along the modes-of-access indicators of financial inclusion, Tanzania is more in line with high income countries than developing countries.
The transformative power of financial inclusion in the United Republic of Tanzania should not be underestimated. Improved access to finance by poor households and micro enterprises can unlock income earning opportunities and self-reliance for many.
This feature analyzes Tanzania’s financial inclusion landscape, with a particular focus on formal payments, savings and credit. Its main messages are:
- Financial inclusion is important for growth and reducing inequality and poverty – in the United Republic of Tanzania and across the developing world.
- On an aggregate basis, access to financial services in the United Republic of Tanzania seems fairly strong. However, the aggregate picture masks significant inequalities in access. In part, financial inclusion reflects the duality of the Tanzanian economy.
- Supply-side issues play a major role – particularly inadequate competition in the banking sector, near absence of microfinance institutions, and inordinate emphasis on payroll lending.
- Aspects of the regulatory environment may play a role, although they do not only serve financial inclusion purpose.
- The presence of highly developed financial infrastructure as well as mobile technology offer exciting opportunities for expanding financial inclusion.
It is observable that “Global experience shows that less endowed segments of the population are best serviced by specialized institutions with a cost structure and business model adapted to their needs,”
“As such, there could be high payoff from introducing a tiered licensing system that opens the market to institutions that can service unbanked and under banked individuals and small and microenterprises.”
Furthermore, it is argued that the entrance of new banks has demonstrated how greater competition can enhance product choice and reduce customer choice. Case studies are cited from countries with comparable economies to show potential approaches that Tanzania might considerfor enhancing financial inclusion.ENDS.