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TechTank

Financial inclusion progress and possibilities in Southeast and Central Asia

Robin Lewis, John Villasenor, and Darrell M. West
Editor's Note:

This post is part of a series on the 2016 Brookings Financial and Digital Inclusion Project (FDIP), which was released at a Brookings public event in August. Following posts on financial inclusion developments in Mexico and other FDIP countries in the Latin America and Caribbean region, this blog explores progress toward financial inclusion across the four FDIP countries in Southeast and Central Asia—Indonesia, the Philippines, Turkey, and Vietnam—and highlights opportunities for further growth.

As in the 2015 Brookings Financial and Digital Inclusion Project (FDIP) Report, none of the FDIP countries in Asia placed among the top five countries in the scorecard component of the second annual FDIP report. The FDIP scorecard assessed the 26 FDIP focus countries on four dimensions of financial inclusion, including country commitment to advancing access to and usage of formal financial services; mobile capacity; the regulatory environment for financial services (particularly with respect to digital financial services); and the adoption of selected traditional and digital financial services.

With that said, trends across several FDIP countries in Southeast and Central Asia reflect positive developments in the global financial inclusion ecosystem. For example, according to the World Bank’s Global Financial Inclusion (Global Findex) database, account penetration among adults living in the poorest 40 percent of households in Vietnam and Indonesia more than doubled between 2011 and 2014.

Moreover, of the six countries in the FDIP country sample that demonstrated either gender parity in terms of account ownership at formal financial institutions or a greater percentage of women than men who reported holding formal financial institution accounts, according to the 2014 Global Findex, three of these countries were located in Southeast Asia: Indonesia, the Philippines, and Vietnam.

It is also noteworthy that the Philippines came very close to placing in the top five on the 2016 scorecard, primarily driven by progress within the country commitment and mobile capacity dimensions of the scorecard. These advances increased the country’s overall score by 8 percentage points—the greatest scoring improvement among any of the 26 countries in the FDIP sample.

More broadly, aspects of the financial and digital ecosystems within the FDIP countries in Southeast and Central Asia demonstrate the opportunities and challenges facing the financial inclusion communities in these countries and beyond. We explore a few highlights below for each of the four FDIP countries, in descending order by overall score.

The Philippines

As noted above, the Philippines achieved the greatest scoring increase of any FDIP country, securing an overall score of 76 percent—the highest earned by any of the FDIP countries in Asia. Moreover, the Philippines received the highest regulatory environment score of any of the FDIP countries in Asia, at 100 percent (the Philippines was one of only three FDIP countries overall to achieve a regulatory environment score of 100 percent).

Examples of factors that drove the increase in the Philippines’ overall score include the launch of a national financial inclusion strategy in July 2015 by the Bangko Sentral ng Pilipinas (BSP), as well as the country’s robust performance in terms of mobile capacity (particularly with respect to unique mobile subscribership and 3G mobile network coverage). Along with Indonesia, the Philippines was the only lower middle income country in the FDIP sample to receive a top score for its level of smartphone adoption. On the adoption side, as of 2014 the Philippines held the highest adoption rate of mobile money accounts across the FDIP countries in Southeast Asia.

While the Philippines has engaged in considerable efforts to advance financial inclusion (as noted in the BSP’s “Financial Inclusion Initiatives 2015” report, among other publications), opportunities for growth in terms of financial access and usage remain—particularly considering that financial account ownership among adults was at 31 percent as of 2014, and about 13 percent of cities and municipalities in the Philippines do not have at least one financial access point.

Moving forward, data collection initiatives, including the 2015 National Baseline Survey on Financial Inclusion (the first nationally representative survey of Filipino adults dedicated to collecting demand-side financial inclusion data), will help public and private sector financial inclusion stakeholders better identify market opportunities and barriers to financial inclusion. Additionally, efforts to promote mobile money platform interoperability are expected to enhance convenience and flexibility for customers, which in turn may drive greater adoption of mobile money services.

Turkey

Turkey earned a score of 72 percent on the overall FDIP scorecard, with the country commitment dimension serving as its highest-scoring area (89 percent). While Turkey has not made specific commitments under the Maya Declaration on Financial Inclusion—a key vehicle for many countries in establishing financial inclusion targets—the Undersecretariat of Treasury joined the Alliance for Financial Inclusion as a principal member in November 2013. Turkey also committed to the G20’s Financial Inclusion Peer Learning Program during the G20 Los Cabos Summit in 2012

In 2014, Turkey launched its national financial inclusion strategy.  Additionally, Turkey has made concrete commitments to advancing women’s financial inclusion in particular. For example, Turkey was recognized by the Alliance for Financial Inclusion and Women’s World Banking for including a focus on women within its comprehensive financial literacy program. Turkey also committed to the GSMA’s Connected Women Commitment Initiative, launched in February 2016, which seeks to connect millions of women in low- and middle-income countries to mobile internet and mobile money services by 2020.

Promoting access to and usage of formal financial services among women is a vital component of advancing financial inclusion in Turkey, particularly given that as of 2014 there was about a 25 percentage point gap in financial account ownership between men and women in Turkey—one of the highest gender gaps among the 26 FDIP countries.

Moving forward, establishing agent banking guidelines could help Turkey expand the distribution network for financial services. Additionally, Turkey’s significant refugee population raises important questions regarding how Turkey can best facilitate access to quality financial services among these individuals. The scale of this issue is considerable: With 2.5 million refugees in Turkey as of 2015, Turkey has hosted the largest number of refugees of any country in the world for two consecutive years. As noted in the 2016 FDIP Report, refugees and marginalized migrants face a unique constellation of challenges with respect to financial access and usage. Public and private sector stakeholders should carefully consider how best to mitigate those barriers—for example, through the advancement of inclusive digital identification mechanisms and policies that consider the language and cultural identities of individual refugees.

Indonesia

With an overall score of 71 percent, Indonesia’s highest-scoring areas on the 2016 scorecard were the mobile capacity and regulatory environment dimensions. Indeed, Indonesia tied for first place on the mobile capacity dimension of the scorecard, earning 94 percent of the total possible points. This robust score was fueled in part by Indonesia’s high levels of mobile subscribership (Indonesia is among the largest mobile markets in the world) and smartphone penetration. Indonesia is also a standout with respect to mobile money platform interoperability, which the country implemented in 2013—one of the first countries in the world to do so.

Particularly given that it features one of the largest populations in the world distributed over thousands of islands, digital financial mechanisms can provide significant utility in Indonesia by extending the reach of formal financial services. Since instituting readily accessible financial infrastructure across a dispersed population and geography yields considerable challenges, digital financial services such as mobile money can have a transformative impact by enabling individuals to engage in financial activities that might prove prohibitively inconvenient or expensive through more traditional pathways (e.g., traveling to brick and mortar banks).

With respect to the country’s regulatory environment, Indonesia’s public and private sectors have promoted innovative approaches to the design and delivery of financial services—for example, by permitting nonbank entities to issue electronic money. However, disaggregating regulatory oversight for digital financial services into branchless banking and electronic money spheres and including certain parameters within electronic money and branchless banking guidelines that may restrict the entry of diverse providers (as well as the establishment of an even playing field for these providers) may serve as constraining factors upon Indonesia’s financial inclusion growth.

Moving forward, harmonizing the electronic money and branchless banking guidelines to enhance regulatory clarity and advance a level playing field for financial service providers could accelerate financial inclusion in Indonesia, particularly given the country’s fairly robust digital infrastructure.

Vietnam

Vietnam was added to the list of FDIP countries for 2016, along with the Dominican Republic, Egypt, El Salvador, and Haiti. With an overall score of 61 percent, Vietnam was the lowest-scoring country among the FDIP countries in Southeast and Central Asia. Vietnam’s highest-scoring dimension was the mobile capacity dimension, at 78 percent. Factors that contributed to Vietnam’s mobile capacity performance included the introduction of mobile wallet initiatives in December 2014 that offer a fairly diverse array of services, as well as robust rates of unique mobile subscribership and 3G network coverage.

Given the extent of mobile capacity in Vietnam and the demand for basic payment transfers and other financial services, there is considerable opportunity to augment adoption of digital financial services. However, one issue impeding greater adoption of mobile money services in particular is that awareness of mobile money is considerably lower in Vietnam than in other Asian countries such as Bangladesh and Indonesia. Engaging in public and private sector initiatives to advance familiarity with, and understanding of, digital financial services could help drive adoption of these services among those who are at the margins of—or excluded from—the formal financial system.

In terms of country commitment, Vietnam could enhance its score in the future by participating in financial inclusion knowledge-sharing networks (e.g., the Alliance for Financial Inclusion). Engaging with key financial inclusion stakeholders from geographically, politically, and economically diverse countries could provide Vietnam with support in developing and implementing a national financial inclusion strategy, as well as in considering pathways for fostering a regulatory environment that is conducive to the introduction and adoption of innovative branchless banking solutions.

By engaging with the international community more extensively on key financial inclusion issues and establishing strategic commitments to advancing financial inclusion, the government of Vietnam could help generate greater regulatory and policy capacity to advance access to and usage of secure, affordable formal financial services—with the ultimate objective of enhancing the financial health and well-being of individuals and communities.

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