There are 1.7 billion unbanked people in the world, the majority of who are from the developing nations. The unbanked are those who lack access to formal financial services and are usually from the low-income earning background. Serving their cause, Mohammed Yunus, founder of Grameen Bank, a microfinance organization in Bangladesh, revolutionized what would go on to become a global standard for poverty alleviation, i.e. Microfinance. Microfinance as we know it, is the financial services, such as microloans, micro savings and micro insurance for entrepreneurs, small businesses and individuals who are poor/from low-income earning background and lack access to traditional banking services. While Bangladesh, the home of microfinance, saw great success through the implementation of this novel idea, a few other countries in Asia, particularly the Southeast Asian region could follow suit.
Asia, the fastest growing economic region in the world is an interesting home to countries that lie on both extremes of the spectrum- on the one hand there are countries thriving on microfinance such as Bangladesh and India, while there are others that are lagging behind in the microfinance scene, despite good opportunities. They are bound by some common threads however, be it the stark geographic or demographic challenges which in fact, gives rise to both a demand for microfinance and opportunities to leverage on the very factors that is otherwise deemed as a challenge. With 60% of the world population living in Asia, it is important to understand why one must look closely into this. South Asia is the global leader when it comes to the number of microfinance borrowers, where two countries in the top 5 are from Southeast Asia. If we observe carefully the individual countries, we can see the need to shift focus on Southeast Asia as the promising region with great scope for microfinance. Here are three Southeast Asian countries ideal but under-explored, in terms of financial inclusion where microfinance can take on an active central role in the upcoming years:
As one of the fastest growing economies in Southeast Asia, Indonesia, is forecasted to become the 4th largest economy in the world by 2050. It also has one of the fastest growing microfinance industries in the world, a development perhaps correlated to the growing number of businesses in the country, the majority of which are SMEs. Many of these SMEs are based in the rural areas that lack adequate access to banks for the financing they need in order to grow their businesses. Owing to this, Bank Indonesia, the country’s central bank, issued a rule that requires banks to have at least 20% of their loan portfolio dedicated to micro loans, opening up new opportunities to further grow the microfinance sector in Indonesia.
Other than a booming economy, Indonesia is winning in other domains as well. It is the fastest growing internet economy in the world with a high number of mobile phone users. However, despite all the progress the country has been making, 81.5% of the citizens are in the bottom of the economic pyramid. As an archipelagic country, inhabitants in its 13, 000 islands remain devoid of any financial services. SME’s in these very areas in particular need and would benefit significantly through microfinancing to grow their business. This means that there is an immense opportunity for branchless banking that can help serve the unbanked and underbanked in the country. Bringing financial services to their doors would help propel the GDP of Indonesia to greater heights.
An imbalance in the large number of population and low financial inclusion rate has lead Vietnam to be among the top 25 countries chosen by World Bank for the UFA 2020 program, a project to ensure that unbanked individuals have access to finance by 2020. Currently Vietnam has banks as their main financial services provider which are mainly present in the urban cities. As a result of which, the rural residents either have to cover long distances just to avail the financial service or are simply discouraged from availing it all together due to transportation costs on an already limited income. The lack of enough access points in such areas are a great starting point for financial service providers and policy makers to provide support where it matters most.
Fortunately for Vietnam, where the locals are mostly concentrated in the rural areas, technology is not such a foreign phenomenon. There are more than 71 million mobile service users with 53% of the population accustomed to using the internet, interestingly more than the regional average of 35%. This is a country ready to embrace and adopt technology and it is up to the policy makers, MFIs, financial and digital service providers to build on this aspect to bring to them the financial access in the form of microfinance that previously has been unavailable to them.
Financial inclusion in Myanmar has seen a steady but slow progress. In Myanmar, 8.8 million of the populations are business owners. However, 56% of the businesses lack a savings account. Unsurprisingly, a UNCDF study found that 52% of businesses reported difficulty in accessing finance. Hence, evidently, the scope to improve financial inclusion is huge. Taking note of this, the microfinance institutions in Myanmar are now developing at a faster rate as opposed to earlier when the industry had barely taken off when compared to its neighbouring counterparts. In the first quarter of 2019, a total of 5 million clients were granted microloans worth 1.3 trillion kyats , a huge jump from 800 billion kyats from the previous year.
Further support is being extended by organizations like UNCDF Myanmar through initiatives such as Expanding Financial Access (EFA)- a country programme working towards increasing financial inclusion in Myanmar from 30% to 40% by 2020. Their aim is to reach not just the MSMEs, but also the smallholder farmers, businesses run by women, the youth of the nation along with the poor. Policies and regulations are being modified to allow an integrated approach in order to make financial inclusion effective. For example, credit rating reporting system has been set in a way that would help financial institutions analyze MFIs before enabling access to credit, a regulation that reinstates the growing support to the industry. All of this shows that Myanmar slowly but surely is on the right direction with active efforts towards financial inclusion.
With digitization taking over, access to microfinance is becoming simpler than ever before. Concepts of innovative technology with well-integrated policies and correct implementation plan are finally being addressed and administered. On the whole, the future looks highly optimistic for Southeast Asia given the commendable performances of the respective countries in terms of their economic growth and efforts to improve financial inclusion.
Click here to find out how Southtech is helping to enable financial inclusion in Myanmar.