An estimated 2 billion adults worldwide live without a bank account. Unable to provide financial security for themselves or their families, this vulnerable “unbanked” part of the population relies primarily on cash for survival. As policymakers, banks, non-governmental organizations and private sector actors come together to eradicate financial exclusion, careful consideration must be given to the needs of the communities most affected by it. Cash will, and should, remain a vital part of the transition from exclusion to inclusion.
As part of its broader goal of eliminating poverty, the United Nations has defined financial inclusion as: Universal Access, at a reasonable cost, to a range of financial services for everyone needing them, provided by a diversity of sound and sustainable institutions.
By far, the greatest barrier to having a bank account most often cited by the financially excluded is a lack of sufficient funds. Other reasons for exclusion include living in an underserved rural area, the inability to prove one’s identity and lack of financial literacy. Over 200 million micro, small and medium-sized businesses also lack access to basic bank accounts and adequate financing.
Aid to the impoverished has traditionally consisted in delivering commodities or vouchers that restrict payments to a list of specific goods. Today, organizations like the Red Cross are leading a new trend towards direct cash transfers in humanitarian aid, empowering those in need to provide for themselves in the ways they know best. Innovations in electronic payments are also enhancing the efficiency of remittances, an even larger source of aid than the humanitarian sector. Above all, these cash transfers result in more value for the local economy than in-kind aid, and thus help reduce poverty in the long term.
In addition, traditional financial institutions fail to reach a large portion of those living in rural or remote areas, where issues such as underdeveloped infrastructure or geographical obstacles prevent dependable delivery of services. Fortunately, promising solutions to these problems have emerged in the form of mobile payment systems, like M-Pesa in Kenya, as well as new schemes to raise the presence of automatic teller machines (ATMs) in these underserved areas.
Many are barred from financial access due to their lack of proof of identity. Although large-scale efforts are underway to improve the prevalence of documentation throughout the world, cash allows these individuals to continue to freely support themselves and their families without any strings attached.
Expanding access to cash also addresses the substantial challenges faced by the financially illiterate when handling money. Those without education in basic financial concepts or who cannot perform abstract calculations count on physical banknotes as a tool to measure value for their households and small businesses.
Financial exclusion only reinforces the marginalization of those who suffer from these more entrenched social problems.
Cash is universal and cannot be ignored in financial inclusion efforts going forward. It is accepted everywhere and can be used by anyone, regardless of ethnicity, age or socioeconomic background. Even in the context of the proliferation of digital payment systems, cash persists.
An examination of the M-Pesa mobile payment system in Kenya shows that, while it has brought transactions and remittances to previously neglected portions of the population, far from replacing cash as some may have expected, it has contributed to making access to cash easier.
Other cases in the UK, Brazil and the Philippines show that there is still great promise for promoting inclusion by increasing the presence of ATMs as well as reducing their costs. Rather than drawing a line among the world’s marginalized between the ‘haves’ with access to digital payments and the ‘have-nots’ whose social conditions preclude the luxury of such instruments, cash-friendly programs successfully boost inclusion by building upon the tool that these communities most trust and know best.
Cash is reinjected in the local economy and offers flexibility and dignity to those in need. The direct and simple nature of cash empowers individuals, households and businesses to best allocate resources, maximizing value for themselves and their communities. Even when money is sent electronically, it is most often converted into cash. Digital systems, as a faster and cheaper way to engage in transactions, can eventually raise the demand for cash, as the case of M-Pesa demonstrates.
Cash is the first step to financial inclusion. Attempts to replace cash with digital payment systems risk creating a new ‘monetary divide’ that could exacerbate the social and economic problems that the excluded already face. Evidence consistently points to low financial resources as the main cause of financial exclusion today. Cash is the most accessible and efficient means of storing and exchanging value. Limiting cash use would cripple the end goal of financial inclusion—mitigating poverty. Cash and digital systems should continue to be complementary tools in the fight for higher global quality of life.
The new ATMIA study on the role cash plays in financial inclusion “Access to Cash: the First Step toward Financial Inclusion” presents an international picture of the importance of cash and ATMs in reaching 2 billion financially excluded persons “As cash is the only form of payment devoid of any prerequisite conditions for access, efforts to liberate people from financial inclusion should, instead, encourage its use,” the paper states.