Financial exclusion can be a significant barrier to economic growth – for both an individual and a nation. The importance of financial inclusion has been especially demonstrated in populations without regular access to traditional financial services—women, illiterate individuals, members of the LGBTQ+ community, etc.
Recent studies have shown that with better financial inclusion, households can absorb economic shocks, boost healthcare and educational investments, reallocate household expenditures to more efficient spending patterns, and overall reduce poverty levels.
For women, greater financial inclusion can mean having more say in the household finances and spending, greater autonomy for themselves, having more say over if, when, and where they will work, as well as a reduction in the community’s gender gap. With this in mind, understanding an area’s financial inclusion can provide key insights for economic development as a whole.
Where are the Unbanked?
Utilizing real-time, on the ground sentiment collected for the Premise Global Index, we were able to get insights from users on their engagement with local financial institutions. Because our users provide key demographic data, we can discover how some populations are more impacted than others.
On a broader scale, we can see which countries in our contributor base have the highest percentage of users without a bank account. The chart on the left shows each country in our Global Index where more than 50% of users are unbanked (this selection was chosen by having a sample size greater than 270, giving us 90% confidence). In Palestine, for example, 87% of users are unbanked, or 377 people.
Given such a sharp contrast to places like South Africa, where 91% of users are banked, what is getting in the way of financial inclusion for these populations? What specific barriers are these groups facing more so than those who actively participate in the formal banking sector?
The nature of Premise’s Global Index allows us to take a more in-depth look at the potential influences on formal financial sector participation. The demographic data alongside more detailed questions in the surveys enables a powerful toolkit of information to understand financial inclusion barriers.
Looking at Financial Inclusion and Income
We know that financial exclusion disproportionately impacts those with lower income, along with those who have less education. This remained true in our contributor insights, with 54% of those without education were unbanked, compared to 34.1% of those with a college degree or higher. The strong trend continued into financial brackets, as those in our lowest income bracket were twice as likely to be unbanked (roughly half of low income users were unbanked, while only a quarter of high income users were).
Perhaps one of the most obvious barriers to banking is the geographic distance from the individual’s home to the bank itself. In the data, it was flagged as one of the biggest barriers—41% of users without accounts stated they don’t have one because there isn’t a bank near their home or work. For those who are banked, there was a fairly even distribution of responses as to how far away the bank was.
In addition to accessing a bank account, other interactions with financial institutions can be inhibited by factors that disproportionately affect a similar demographic. In terms of purchasing property, the biggest barrier our contributors faced was a lack of government records on property ownership/history. Similar to the bank accounts, this barrier impacted those in our lowest income bracket more—55% of these users stating this was their biggest barrier, compared to just 41% of users in our highest income bracket.
While these statistics provide key insights on the topic of financial inclusion, there is still more to discover: how far away is the bank for those who do not have a bank account? How close would it have to be to make them consider getting one? What is their current method of money storage and management? What are the dynamics in the households financial decision making processes? The strength of Premise’ data is in its ability to surface problem areas within a topic, and then generate targeted, custom lines of questioning for our customers to uncover deeper insights on an issue.
It is clear that addressing financial exclusion will take a multifaceted approach toward including specific demographics. The most productive financial inclusion cannot be pursued by simply aiming to bank the maximum number of individuals. Instead, it requires precise policies that address the largest barriers to engagement with the formal financial sector. With the ability to fill in some of these gaps in information, Premise makes targeted campaigns and policy more attainable for governance, finance and development. For more information, email us at firstname.lastname@example.org.