Half of the world’s adult population is unbanked

A report released by the Financial Access Initiative in October 2009 points out that 2.5 billion people or half of the world’s adult population is unbanked. This means that they do not use formal or semi-formal financial institutions.

It also shows that socio-economic and demographic factors are not the only determinants of financial inclusion. For example, countries such as India have far wider usage of formal financial services despite the fact that large numbers of its population reside in rural areas.

Some key points:

• The data is demand led and is based on “use of”and not access to financial services.
• CGAP uses supply side data from a survey of financial regulators from 139 countries and have come up with a similar figure: 2.8 billion adults are un-banked.
• India and Thailand have relatively low per capita income and a large rural population but have greater use of financial services than several richer, more urbanized countries.
• The key findings include that countries can improve levels of financial inclusion by creating effective regulatory and policy environments.
• The definition of an adult is a person of 15 years or older.
• Nearly all of the unbanked adults live in Africa, Asia and Latin America.

The fact that a majority of the 2.5 billion are those that live on less than $5 day greatly inhibits their capacity to create wealth, build their assets and manage risks and unforeseen shocks. In the light of this evidence, microfinance – especially access to savings – becomes exceedingly important.

The Global Assets Project (GAP) has been advocating for savings-led programs for the poor for some time now. In collaboration with Columbia University, GAP is launching a savings project for youth in Nigeria which is the first child development account pilot in Nigeria and the African continent. The project is working with the youth as starting with the young will ensure that by adulthood, they would be secure adults with training in financial literacy and a corpus of savings that not only provides them with resources to advance their opportunities but also confidence.

There has been a lot of press opposing microfinance recently, click here for an article in Foreign Policy that provides examples of innovative savings led projects across the globe, arguing that it is too premature to write off microfinance.

Shweta Banerjee is a consultant with the Global Assets Project