More than 2.5 billion adults in developing countries are financially excluded but have mobile phones, according to a recent study conducted by the Boston Consulting Group (BCG) for Telenor group.
The study focused on assessing the socio-economic impacts of mobile financial services (MFS) on financial inclusion by the year 2020 in the Telenor groups core markets for mobile operations - Pakistan, India, Malaysia, Bangladesh and Serbia.
The term financial exclusion refers to a state of having either limited access (under-banked) or none at all (un-banked) to financial services such as basic payments, utility bills payments, remittances, and access to saving accounts, credit lines and insurance products, etc.
The BCG study reaffirms the mobile phone as key to overcoming financial exclusion and puts mobile network operators (MNOs) in a unique position to benefit from this opportunity.
There is a possibility that a large majority of the currently 84 percent un-banked adult Pakistanis may continue to remain excluded due to informal financial arrangements, cultural/religious issues, lack of credit history, complex financial products, inaccessible branches, and skepticism towards financial institutions.
According to the study, adoption of MFS would decrease financial exclusion of the un-banked by 20 percent and improve financial inclusion (fully banked and under-banked) to 41 percent by the year 2020. This is in sharp contrast to baseline financial inclusion (modeled on the penetration of key financial services without including potential MFS impact) of only 29 percent in 2020.
"With MFS, previously un-banked are assumed to take on adoption basket of under-banked, while the under-banked are assumed to become fully banked," says the study.
It is interesting how exactly this massive financial inclusion will unravel in a span of 10 years. By 2020, BCG estimates, 27 million Pakistani adults will hold savings accounts and 17 million additional customers will pay utility bills, through mobile phones. MNOs, by capitalising on their brand image, access and established relationship, will be able to offer lines of credit to 10 million Pakistanis.
Through health, crop and natural disaster insurance, 4 million more people could be insured by 2020 - twice the number insured in 2011. International remittances will also rise by 21 percent due to MFS being safe, convenient, low-cost, and trustworthy.
The BCG also estimates the socio-economic impact of a large scale MFS adoption. Increased savings built in the system through MFS would lead to increased credit allocations. Investment opportunities and non-discriminatory access to credit would lead to creation of up to 0.6 million new businesses by 2020, mostly among rural, informal entrepreneurs.
New business activity will, in turn, create 1 million new jobs by 2020 - this roughly translates into jobs for 1 in 10 among the unemployed today. The cumulative effect on GDP could be an addition of $3 billion (in PPP terms) by 2020.
Adoption of MFS will have positive effects on healthcare, education, gender gap, financial security and entrepreneurship, especially among the poorest of the poor. It will also act as a social buffer against financial shocks in times of unfortunate events like food shortages and natural disasters.
The study finds MFS impact on financial inclusion to be positive in other countries too. By the year 2020, adoption of MFS could increase financial inclusion of the un-banked in Bangladesh by 10 percent, Malaysia by 5 percent, India by 12 percent, and in Serbia by 11 percent. Its impact on job creation, entrepreneurship and GDP is also positive across these countries.
The BCG study clearly shows another opportunity for Pakistan to help overcome its economic woes and social deprivation, and the economic managers should include promotion of MFS in their agenda. It is suggested that the central bank remain flexible and continue to support the budding branchless banking sector, and it is hoped that - like Telenors - more research initiatives are undertaken by the private sector players.
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A 1 percent change in Financial Inclusion can:
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Reduce predicted Gini coefficient by 0.066 percent
Increase annual GDP per capita growth by 0.03 percent
Increase Busniess creation by 0.5 percent
Increase Employment by 0.06 percent
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Source: World Bank studies
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