This is the final post in the blog series on regional reflections on financial inclusion in 2012.
The world of financial inclusion in South Asia had its share of innovation, disappointments, and growth over the last year. There are two larger trends across South Asia to highlight for 2012.
- Microfinance has faced many challenges in multiple countries and yet continues to grow.
- Branchless banking has moved quickly beyond an idea showing significant acceleration during 2012.
Here are some developments that caught our attention over the last year from India, Bangladesh, Nepal and Pakistan.
Microfinance a robust and growing force for inclusion
The situation in India that began in 2010 has effects that linger. Yet MFIs outside of Andhra Pradesh have stabilized and a number are growing again. Banks are lending at moderate and increasing levels to MFIs enabling many to stabilize and a significant number are beginning to grow again at a measured pace.
This stabilization has happened amid a tighter regulatory environment. The margin cap (10% above cost of funds) incentivizes MFIs to reduce costs and minimizes profits. Though this stifles investment in research and at the same time pushes MFIs to offer larger loans. Other restrictions on NBFC-MFIs limit the total amount of individual lending (roughly 10% of loan portfolio) and still prohibits NBFC-MFIs to operate as a business correspondent (or bank agent).
Many MFIs wish to innovate on products and business models; however only a few have embarked on significant change yet. Most MFIs remain dependent on group based mono-credit products. Only a few players have begun to innovate pushing into new segments, offering new products, or creating new business models. Getting from intent to strategy to implementation is challenging. Despite these challenges microfinance in India remains active and growing; a testament to the persistence of staff and the strong demand by clients for credit. The KGFS family of organizations has also been highly innovative in building an innovative business model, multiple products and found ways to operate within a complex and challenging regulatory environment.
Microfinance in Nepal rarely gets mentioned globally but it has flourished in recent years with a formally regulated deposit taking category of microfinance bank. These institutions now reach as many as over 800,000 active borrowers and 1.4 million depositors, and have proven sustainable and profitable over a number of years. All this progress despite the political challenges that Nepal has been facing over the last decade is another testament to the staying power of microfinance.
In Bangladesh, microfinance in 2012 exhibited relatively little growth and nearly every rural household has access to a microfinance service. What is remarkable about Bangladesh is not growth but instead the staying power of the basic microfinance model. Recent developments include a much greater emphasis on new market segments and particularly small businesses. The portfolio growth for individual loans to small businesses significantly outpaced traditional smaller microfinance lending to rural women in 2012. This is both a sign of a saturated market and a push into new segments.
Branchless Banking moves off the drawing board and into action
Branchless banking across the region had begun, but gained significant momentum in 2012.
In India multiple forces in Government continue to push branchless banking. This has been a priority for financial inclusion by the Ministry of Finance and RBI, but this has been added to by linking accounts to newly established unique identification numbers (Aadhaar) to disburse social welfare payments and subsidies. Although the momentum is strong, there are concerns over agent network quality, and the lack of account use, even though bank accounts have been opened for the poor at a rate unseen in the country before.
Bangladesh has gained momentum too, but driven more by a push to satiate a private need to make basic person to person payments. This has been driven by bKash a subsidiary of BRAC Bank and the mobile banking of the Bank Dutch Bangla Bank. Starting only in middle of 2011 these two providers of mobile financial services have grown quickly to reach over 3m accounts and have started some 45,000 agent points of service by the end of 2012. Transaction volumes are rising sharply each month.
Bangladesh may be gaining ground, though the most active market for branchless banking may be Pakistan. EasyPaisa the service offered by Telenor Pakisan and Tameer Bank continued to grow volumes especially for over the counter basic payments service. The second largest mobile operator to start a bank entered a partnership with Mobilink, offering services through Waseela Bank. Other large commercial banks like Habib Bank and UBL continued their roll outs making Pakistan one of the most competitive and interesting markets in the world.
The growth in branchless banking will of course bring on new challenges. But South Asia is moving and more and more action is taking place on the ground with clients. We will learn a lot as things unfold in 2013.
------ Based out of Dhaka, the author is CGAP’s regional representative in South Asia.
Thank you, Greg, for this interesting post on the world of financial inclusion in South Asia. At the Overseas Private Investment Corporation (OPIC), advancing financial inclusion in developing economies is one of our priorities. Like in South Asia, rates of financial inclusion are low in Sub-Saharan Africa. The Access Africa Fund has helped enable smaller microfinance institutions in countries like Cameroon, Ghana and Kenya to provide access to micro and small entrepreneurs. http://www.opic.gov/blog/opic-in-action/expanding-access-to-banking-and…
An over view on financial inclusion
Since this posting is reported to be last in the series, an over view on the various observations so far made in this blog on financial inclusion movement across the countries that committed to implement as per MAYA declaration, has been made for kind perusal
1. From global perspective, the progress of inclusion coverage and the modes of inclusion are descriptively covered. However most of the contents portray the status from supply side perspectives with too much focus on technology without much consciousness on impending outcome later..
2. To wit, the outcome of such supply biased inclusion reveals low penetration in the bottom layer of unbanked section ( e.g MPesa , Jipnag Ku sav in Kenya) with the apprehension whether inclusion is inclusive enough and even in the included group, sustainability of inclusion begs the question reflecting the hastiness and wastages as could be perceived in different manifestation from demand side perspectives.
3. Two out of four MAY declarations emphasize the need for creation of enabling environment for increased access at low cost and integration of customer protection (CP)and empowerment as key pillar of FI. Technology has provided enabling environ for the institution and for the various actors in the supply chain –the bank, BC, Network, manager ,sub agents, TSP for (POS) for inclusion process. Here it may be noted that the institutions and the tech modes of inclusion are only means and not end itself for any development intervention. But looking from demand side perspectives, the purpose of inclusion is served only when enabling environment is provided adequate enough for productively utilization of financial products accessed in the demand side. In the given environment lacking adequate infrastructure in many economically backward regions in terms of power, roads, communication, transport, bridges, canals, warehouses, market yards coupled with livelihood vulnerability , the inclusion will not work favorably to the clients towards their desired empowerment . Further CP , being the key pillar of MAYA , it is not clear how CP is ensured with accountability among the various actors in the supply chain listed above for ant ground level issue be it financial oriented or technology related.?
4. The factors happening after inclusion pose serious concern questioning the rationale of such hasty inclusion drive through technology mode. In this regard, the exclusion of included phenomenon mostly in group system, defunct or in operative accounts (even among no frill a/Cs ) group mortality , delinquency etc., merit the attention of proponents of financial inclusion experts and policy makers but these factors remain neglected or have not received due attention they deserve for sustainability of inclusion. In the context of persistent phenomenon of exclusion of once included more particularly in South Asian countries where lions’ share of unbanked poor live, how MAYA declaration on consumer protection & empowerment being the key pillar of inclusion is taken care of ?
5. Financial inclusion In the microfinance realm, any monolithic solution either with micro credit or with micro finance for all the countries uniformly appears harmful. In the context of regional imbalances in growth and development on one hand and capability differentials among the human asset in different countries in the world, financial inclusion strategy need to focus appropriateness of financial products whether micro credit or microfinance that fits to the given area /countries . Taking cognizance of the above criteria for inclusion, micro credit alone to be considered in western countries and Europe while micro finance for Asia, Africa and rest of the countries
6. In the last, towards poverty cure, it is debatable what is the priority- number of mobile or toilet per population? My views are not necessarily against technology but sequencing matters.
Thank you for sharing my views