Nearly half of all adults in the world are excluded from formal financial services; that is 2.5 billion persons103
. The vast majority live in developing or emerging economies and can represent 90% of the population in some countries. Even in some advanced economies the number of unbanked can be as high as 20%. In the US, the Federal Deposit Insurance Corporation104
estimates that 7.7% of households were unbanked in 2013 and 20% were under-banked, meaning that they hold a bank account but do not have full access to banking services.
According to the World Bank105
, lack of money is the most frequently cited reason for not holding an account. Distance and documentation are also significant obstacles. Often, the main barrier to account penetration in rural areas is the large distance to a bank branch. Other barriers include stringent “Know Your Customer” regulations that banks are required to comply with as well as guidelines on combating money laundering and the financing of terrorism. These can prevent poor households from entering the financial system.
Central banks and regulators have taken a variety of measures to foster financial inclusion106
. Some countries, such as India, have encouraged the expansion of bank branches and ATM networks; the number of ATMs in India has been growing at a compound annual rate of 24% since 2010 and is expected to reach 175,000 in 2015. Many others, including Brazil, Colombia and Peru, have promoted “branchless banking” meaning the delivery of financial services outside of conventional bank branches.
The third lever for increasing financial inclusion is innovation, as illustrated by the development of M-Pesa in East Africa. M-Pesa was launched in 2007 in Kenya. According to the Central Bank of Kenya 2014 Annual Report107
, in June 2013 there were 120,781 mobile money agents, with M-Pesa accounting for 66.43%. This figure far exceeds the country’s 26,750 bank agents.
Greater financial inclusion not only requires an increased network for depositing and withdrawing cash – bank branches, ATMs, micro-finance institutions – but also instruments to transfer cash faster and cheaper, including mobile devices. This increases the demand for cash and raises the velocity of banknote circulation.
The Financial Sector Deepening Trust of Tanzania (FSDT) has completed a census of cash outlets in the country, where basic “cash in/cash out” transactions can be conducted108
. M-Pesa agents number almost 17,000 and account for 87% of all cash outlets commonly used for financial services or money transfers. (Data on the agents of other mobile money systems was not available.) MFI (Micro-Finance Institution) branches are the second largest type of outlets, with almost 1,100 points across the country. Commercial banks have almost 500 branches and an additional 369 stand-alone ATMs. Traditional money transfers are made at over 400 bus stands and 200 post offices.