When people without access to modern financial tools get connected through their mobile phone, they end up saving more and paying their bills in a timelier way among other benefits, new research shows.
“The world is getting better at understanding the mechanics of financial inclusion, and the ways that digital technology can accelerate it,” Mark Suzman, president of global poverty and advocacy at the Bill & Melinda Gates Foundation, writes in Eco-Business, an e-publication focused on sustainability issues in Asia. “This is great news for the unbanked.”
Access to the financial mainstream makes it easier for the unbanked to focus on their job or business, which typically leads to higher wages or profits, Suzman argues. It also gives them an important emergency buffer against unexpected costs like a medical crisis or crop failure. Financial inclusion is a way to grow local economies and boost global prosperity.
This topic found its way on to the agenda of the G-20 summit last month in Hamburg, Germany. It was overshadowed there by weighty global issues such as terrorism, climate change and trade. But at least it found its way to the international stage. “As leaders in China, Kenya, Mexico, and many other countries have already discovered, an economy that includes everyone benefits all,” Suzman writes.
About 2.5 billion people globally live without even the most basic financial services, such as a checking account. With a mobile phone, they would have access to the larger financial world even if they live in a remote part of the world. A McKinsey study last year concluded that broad access to digital financial tools could increase developing countries’ GDP by $3.7 trillion by 2025. That’s larger than all the economies of Africa combined and would create up to 95 million jobs.
Developing nations are making a big bet on mobile wallets as part of their financial literacy strategies. With limited access to banks, people in nations like India, Uganda, Kuala Lampur, Philippines, and Malta through their phones can open bank accounts and take advantage of lower cost loans.
In Kenya, “mobile money” allows users to transfer funds by text message and has helped an estimated 194,000 households escape extreme poverty as they saved more and made different choices around their business or occupation. In Mexico, people are now allowed to open bank accounts with only a phone number. This has led to nine million new bank accounts in two years.
This is all part of a new digital world that may soon see developed economies go cashless. There is upside for everyone.