Banking Asia’s unbanked - Takehiko Nakao | Asian Development Bank

Banking Asia’s unbanked - Takehiko Nakao

Op-Ed / Opinion | 3 May 2015

Simple acts such as withdrawing money from an ATM or taking a loan to expand the family business are beyond many people in Asia. Millions of citizens are excluded from basic financial services, prolonging their poverty and hampering growth.

Nearly everyone at the region’s wealthier countries like Singapore has a bank account, often linked to other services. But in less developed countries like Cambodia and Tajikistan fewer than 5% of people have bank accounts. Across developing Asia only 27% of people are banked, 10% below the global median.

ATMs number about 75 per 100,000 people in Brunei Darussalam and Thailand, but less than five per 100,000 in Bangladesh and Uzbekistan. Just a third of developing Asia’s firms have a line of credit or loan from a financial institution compared with 54% in Latin America, and 16% of companies don’t have a checking or savings account.

The lack of inclusive financial systems means poor households find it more difficult to save and invest, exposing them to income shocks. Small businesses must rely on earnings to pursue growth opportunities, missing out on bigger opportunities. Or they tend to fall prey to money lenders who charge exorbitant interest rates.

Inclusive growth can only occur when accompanied by robust measures to enhance access to finance for the millions of “unbanked” people in Asia.

Financial inclusion

It is promising, however, that many Asian governments have made financial inclusion a priority. India recently launched the “Prime Minister’s People’s Wealth Scheme”, which has led to more than 140 million new bank accounts — nearly double the original target. The scheme also offers new account holders an overdraft and insurance coverage.

The Philippines has made remarkable progress, in part by tripling since 2012 the number of banks which offer micro-deposit accounts. These usually have low or no minimum deposits and no service charge. The People’s Republic of China (PRC) cut the number of unbanked towns and villages almost by half between 2009 and late 2011. These initiatives provide access for poor and remote communities to services such as savings, loans, insurance products and money transfers.

ADB has supported financial inclusion in Asia through more than 300 projects over 40 years. They include micro-loans in India, crop insurance in Bangladesh, and credit to small and medium-sized enterprises (SMEs) in Kazakhstan — to name a few. When I visited Pakistan, I was impressed by its conditional cash transfer programs, which use debit cards to facilitate assistance to millions of poor women in rural areas. Our priorities also include supporting financial literacy and promoting cost-effective technology.

Still, more needs to be done. The goal should be to reduce the cost and risk of extending financial services to the unbanked, who often live in hard-to-reach areas.

The first step is to give the poor opportunities to save and borrow. Savings programs at schools and companies can help. In Indonesia, the People’s Business Credit Program addresses difficulties faced by small business in obtaining collateral for bank loans by offering a government guarantee for 70% of the loan amount.


Micro-insurance is a second key to financial inclusion. Insurance helps the poor cope with income shocks, but only 4% of Asians are covered. Thailand and Malaysia have seen fast growth of micro-insurance, especially for health, life, crop, and livestock protection. Coverage for poor households needs to be expanded, and products should be designed to pay out quickly — particularly after natural disasters — to build trust with customers.

A third step is greater use of information and communications technology. Mobile money —which allows customers to transact using mobile phones — is a cheaper and faster way to receive and make payments. In the Philippines the number of e-money accounts, which provide holders with access to a stored value of “electronic money”, grew by a third over two years to 27 million in 2013. A new online business registration system in the Solomon Islands is helping companies apply for loans using boats, cars, or farm equipment as collateral.

Finally, SMEs need more reasonably priced finance. Across Asia, SMEs are a major source of job creation, and thus a vital pillar of inclusive growth. The need for more assistance is particularly acute for SMEs run by women in the developing world, 70% of which are unserved or underserved by financial institutions. Partial credit guarantees by governments would widen their access to bank credit. The PRC has promoted SME bond issuances, and SME equity listing on the Shenzhen Stock Exchange.

Financial inclusion is key to Asia’s future as it empowers poor households, encourages smaller businesses and fosters inclusive and sustainable growth. Policymakers must redouble their efforts to help bank the unbanked.

Takehiko Nakao is president of the Asian Development Bank