During April – September 2012, CGAP undertook a research on the state of financial inclusion in Russia; the report on findings was published in January 2013. As far back as 2007, access to financial services was identified as one of Russia’s domestic priorities: it was estimated back then that over 40 percent of the population lacked access to banking services; and the supply of financial services outside Moscow was only 4 percent of the level of Moscow.
By 2012, the progress in financial inclusion in Russia has been significant. The number of people not using any banking services reduced to 22 percent; the supply of financial services increased fivefold; and the number of bank branches per 100,000 adults grew to over 37 – which puts Russia ahead of some highly developed countries. In the area of branchless banking, the advancement has been even more rapid. From virtually none several years ago, Russia has developed various innovative financial service delivery channels that are now being used by some 50 percent of the population (though currently primarily for payments). This includes a specific Russian solution – cash-in payment terminals that are the number one type of point of service in the country for the kinds of transactions they can accommodate. The total number of such points of service has reached 319,000 which exceeds the number of ATMs by almost 1.7.
But does all of this mean that the financial inclusion task in the country is complete? And do these typical financial inclusion measurements reflect the true and complete picture? During the research, we pictured an old woman living in a remote region in Siberia – a “babushka” (grandma) who needs basic financial services to be able to get her pension, make payments, save etc., and asked ourselves whether financial services are now accessible to people like her.
It turns out that despite all the progress, access to financial services is still a huge challenge in remote areas of the country. In fact, as we looked at the geographical distribution of bank branches – per 1,000 square km – we found that in this respect, Russia’s figures are far behind many developed countries. Certainly, being the largest country in the world, Russia has many uninhabited areas (and thus comparisons to densely populated countries may not be appropriate), but the same is true for the United States, for example. Yet in the latter, the number of bank branches per 1,000 square km is about 3.5 times higher than in Russia.
The fact that many regions are not reached by financial services was further confirmed in our interviews as some financial service providers mentioned how difficult it is to work in remote and hard-to reach regions where sometimes there is even no internet coverage. Even Sberbank – the giant state bank with the largest branch network, holding the majority of retail deposits – has been gradually closing down its offices in some of the remote areas of the country. In some settlements, the only providers of financial services are credit cooperatives which are allowed a very limited range of services and cannot meet all financial service needs. The cooperatives may have up to half of all residents in such settlements as their members. I recently heard that in one of the regions, a credit cooperative was used to pay out salaries to state workers as there was no single bank branch around.
So how can access to financial services be provided to the unbanked and under-banked in Russia? First, we think that more granular information on specific needs and characteristics of these population segments is necessary – to help adjust services and delivery channels. Additionally, looking at the aggregate financial inclusion indicators may not be very helpful as they tend to disguise the issue; instead, it is necessary to look at the financial service providers’ presence in towns and settlements of various size and better understand their concentration. Perhaps policy measures similar to the Community Reinvestment Act in the US – which calls on banks to serve the poor parts of their catchment area as well as the rich – are called for to ensure that financial service providers reach beyond their current clientele.
Olga Tomilova is CGAP’s regional representative for Eastern Europe and Central Asia.