The Slow Global Spread of Savings Accounts

Mobile services like M-Pesa are bringing more people around the world into the formal financial system. Mobile services like M-Pesa are bringing more people around the world into the formal financial system. Credit Photograph by Benedicte Desrus/Sipa USA via AP

Last year, researchers travelled around the globe to talk about personal finance with a hundred and fifty thousand people, representing a range of socioeconomic classes, and living both in cities and in remote, rural parts of more than a hundred and forty countries. In some countries, they called people; where phone use was less widespread, they visited interviewees one by one. The questions they asked were, at times, probing. Had respondents, in the past year, received money from a relative or friend? If they needed to come up with emergency funds, how possible would it be, and where would the sum come from? Did they have an account at a financial institution? The results of those inquiries were published Wednesday, in the latest edition of the Global Findex Database, put out by the World Bank. The report found, most notably, that the percentage of adults with some kind of financial account—at traditional institutions like banks, or with companies that let people use their cell phones for transactions—rose from fifty-one per cent worldwide in 2011 to sixty-two per cent in 2014.

The concept of financial inclusion—bringing more people into the formal financial system—is fraught. It’s hard not to notice that it happens to mean more customers for powerful banking institutions, many of which have ties to the World Bank. Some of the services these entities offer—credit, for instance—have been known to worsen people’s financial lives at least as often as they have helped to improve them; in fact, research on the impact of improving people’s access to credit, as a specific financial service, is mixed. Leora Klapper, a lead economist at the World Bank and an author of the report, acknowledged this (“Not everyone should have credit,” she said), but she added that the Findex Database is more concerned with people’s access to savings vehicles, which, evidence suggests, have a positive impact.

One evaluation in rural western Kenya, according to a report from the Consultative Group to Assist the Poor, found that access to a savings service helped female market venders to spend more on food for their families and invest more in their businesses. (A study of male rickshaw drivers in the same village didn’t, however, show such benefits.) Another examination in Kenya, cited in the same C.G.A.P. report, found that those who used the popular mobile service M-Pesa, which lets people transfer and store funds with their cell phones, were better able to absorb negative income shocks—events like a severe illness or a job loss—than those who didn’t use the service.

In putting together the Findex report, Klapper told me that she was particularly struck by the stories she heard from women that highlighted how savings accounts can be a source of familial power—and how not having accounts can have negative repercussions that go beyond the financial sphere. A Bangladeshi garment worker who didn’t have a bank account told Klapper that her mother-in-law waits outside the factory gates, to take her cash wages as she receives them. Another woman, in Ghana, who was erecting a house, was giving the builder cash to purchase a small amount of materials at a time, as she received her wages, instead of paying him in larger installments; when Klapper asked for an explanation of her methods, the woman quipped that her husband couldn’t drink cement—getting rid of the cash as it came in was safer than storing it at home. Referring to women who had gained access to savings accounts, she told me, “For the first time, they’re not coming home with cash in their pocket for some other family member to take.” That meant more funds to put food on the table, educate children, and save for old age.

That scenario is, of course, a best-case one. An important reason for the rise in savings accounts is that in India, the world’s second most populous nation, the government has made a concerted, high-profile push to move “unbanked” adults into the formal banking system. Journalists have noted that those efforts have had mixed results. Mark Bergen explained in a post last year that while people are opening savings accounts in large numbers, many of those accounts are sitting dormant, and the Findex report reinforces that conclusion. In India, the share of people with accounts rose from thirty-five per cent in 2011 to fifty-three per cent in 2014. But about forty-three per cent of those with accounts said that they hadn’t made deposits or withdrawals in the past year, compared with five per cent of financial-account holders in high-income, O.E.C.D. countries. The Indian government put a lot of effort into persuading people to open accounts in the first place but, it seems, could have done much more to make sure people would see the benefits of actually using them.

For the Findex report, researchers asked people without savings accounts for the reasons they don’t have them. The explanation people gave most often was that they didn’t have enough money to warrant opening one. Other common reasons were that they didn’t otherwise need one or a family member already had one. After those, the top responses had to do with barriers to access: accounts were too expensive, financial institutions were too far away, or people didn’t have the documentation they needed to open accounts. Governments and account providers, Klapper said, need “to design appropriate products.”

The report offers some thoughts on what those products might look like. Financial institutions could license local intermediaries, such as shop owners, to act as their agents, so that people don’t have to travel hours to a banking branch just to deposit a bit of cash. For those small accounts holding the equivalent of a couple of dollars, they could introduce tiered documentation requirements, like allowing a village elder to confirm someone’s identity, while maintaining higher standards of proof for bigger accounts to avoid fraud and other illegal activities. Governments, for their part, could require banks to offer basic, low-fee accounts. An approach that seemed to particularly excite Klapper was for governments to promote mobile accounts like the ones M-Pesa facilitates; from her perspective, financial inclusion in the digital, mobile age might not even require the participation of traditional institutions such as banks. “Throughout Africa, you have rural areas where there are not bank branches,” she pointed out, “but every village has mobile-phone agents.”