Home Crypto Libra LIbra: What Findex Says about FInancial Inclusion

LIbra: What Findex Says about FInancial Inclusion

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One of the stated missions of Facebook’s Libra project is to become the solution for the poor and unbanked people around the Globe. Facebook took its figures about financial exclusion from the Global Findex Database, so let’s see what their last report says about financial inclusion.

The Global Findex Database

The Global Findex database was launched in 2011 by the World Bank and sponsored by Bill & Melinda Gates. It is the World’s most comprehensive piece of information on the ways people get, save, borrow and spend money, covering more than 140 countries around the world. There have been three surveys so far, the last one being in 2017. Relevant information and data are available at https://globalfindex.worldbank.org.

Why Financial Inclusion Is key for Development

In its last report, the Global Findex database writes about the need to improve financial inclusion as a developing force, especially digital financial services.  As an example, mobile money services allowing people to receive, store and transfer funds would help them improve their potential earnings and reduce poverty. A study by  Suri and Jack (2016) in Kenya showed that access to mobile money was highly beneficial for women, as it enabled them to increase savings by more than 20%. Also, according to this report, mobile payments allowed 185,000 women to leave farming and develop retail business activities. All this helped reduce poverty by 22 per cent among households headed by women.

Account Ownership Growing by the Use of Mobile Apps

The latest report of the Global Findex Database shows that 515 million adults have opened an account through mobile banking between 214 and 2017. This means 69% of adults worldwide have at least one account, an increase of 18 points from 51% in 2011.

Source: Global Findex Database

Mobile Money Accounts Growing

According to this report, mobile money accounts were more numerous in Sub-Saharan Africa, exceeding 10% in 2014. But the last survey showed that the share has improved by 2017, surpassing 30% in Côte D’Ivoire and Senegal, and 40% in Gabon.

Mobile money has also started to be usual outside Africa, reaching 20% in countries such as Bangladesh, Iran, Mongolia and Paraguay.

Source: Global Findex Database

The Inequality Gap

Account ownership continues growing, but the 7-point (developed countries) and 9-point (developing economies) gap between men and women do not. There is also a 13% gap between the 60% richest and the 40% poorest in bank account ownership. These two gaps have kept unchanged since 2014.

The Unbanked

There are 1.7 billion unbanked adults. Since account ownership is virtually universal in developed economies, the majority of the adults with no banking accounts live in developing countries. About 50% living in seven countries: China, Bangladesh, India, Pakistan, Indonesia, Nigeria, and Mexico.

Source: Global Findex Database

Also, 56% of unbanked adults are women, and, 50% of the adults with no accounts come from the 40% poorest households. Besides, about two-thirds of unbanked are low-educated people, with only primary education or less.

Reasons for not having an Account

To understand the reasons why these persons don’t have bank accounts, the 2017 Global Index survey asked persons with no account why they didn’t have one. The most common reason for not having one was they didn’t have enough money to use an account. The second reason was cost. The third was because another family member already had one. Also, the distrust on the financial system was mentioned.

How people receive payments

The usual way, except for the poorest countries, is to receive government payments through a banking account. Wages and other payments for work use also banking accounts in highly developed economies. In developing countries, only 50% receive these payments that way.

About 15% of persons in developing economies sell agricultural products, using cash in their transactions. But in the Sub-Saharan countries such as Ghana and others, up to 40% of their payments are received into a mobile account.

Digital payments

According to the latest survey by the GFD, 53% of adults (76% of accounts) have made at least one digital payment using their account in 2016. In highly developed economies, that figure goes to 91%, while in developing countries, only 44% of people have used digital transfers or payments. However, the use of digital payments has increased by 11% between 2014 and 20017.

Source: Global Findex database.

How many of these 1.7 billion unbanked could be targeted by Libra?

Daniel Evans, in his article at Condesk.com, says that nearly 50% of these people live in countries who banned cryptocurrencies, Facebook does not operate there, or under FATF restrictions due to money laundering and anti-crime concerns. He is sceptic about the success in targeting unbanked people, but he seems not to look at the positive side of it. If 50% of unbanked people initially cannot access Libra, there is still another 50% that can, and that means 800 million people will benefit from the Libra coin.

From the Global Findex Database, we see that Sub-Saharan Africa is very bullish about digital payments and that trend is also growing in other countries. Libra may signify a tremendous impulse in the use of digital payments.

Also, these countries’ laws against cryptos are not written in stone. If the use of digital money shows economic benefits for the countries allowing Libra, the likelihood of a legislation shift may grow shortly in countries opposing Libra. It may happen also that other digital payment systems may be permitted in these countries. The overall effect of Facebook’s Libra about the unbanking problem should be quite positive.

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