Monthly Newsletter Issue No. 28
As majority of Afghan are unbanked this article will throw light to the Financial Inclusion (FI) aspect of how to include vulnerable section of society in financial industry of Afghanistan as direct stakeholders.
The concept of Financial Inclusion has remained a serious challenge to Afghan Economy especially to financial industry. This paper will help the newly established Financial Inclusion Department (FID) of Da Afghanistan Bank (DAB) in developing mechanisms and frameworks to improve financial inclusion in the country.
Before starting the discussion in this regard, it is very much important to highlight the definition, meaning and scope for such technical and scientific financial terminology.
According to Dr. K. C. Chakrabarty, Deputy Governor of the Reserve Bank of India, at the FICCI (Federation of Indian Chambers of Commerce & Industry) – UNDP (The United Nations Development Program) Seminar on “Financial Inclusion: Partnership between Banks, MFIs and Communities”, New Delhi, 14 October (2011), “Financial inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of society including vulnerable groups such as weaker section and low income group at an affordable cost in a transparent manner by the mainstream institutional players.
Mountain Hazelnuts, a social enterprise focused on improving lives in Bhutan through the cultivation of hazelnuts, has joined the Business Call to Action (BCtA) with a commitment to integrate 7,500 women-headed smallholder farming families into its value chain.
In the process, the company will train at least 4,000 women in financial literacy, help at least 75 percent of them to open bank accounts, and directly employ 500 Bhutanese women.
The BCtA is a global initiative that aims to support private sector efforts to fight poverty through its core business. It is supported by several international organizations and hosted by the United Nations Development Programme (UNDP).
A small landlocked country in the Himalayas, Bhutan’s mountain households have few opportunities to generate cash income. The country’s smallholder farmers mainly cultivate maize, rice, and vegetables for their own subsistence. Many farming households are headed by women – few of whom have a formal education.
Although indigenous to Bhutan, hazelnuts have neither been grown commercially nor consumed in the country. However, there is a huge market potential for their overseas export, especially given the nuts’ nutritional properties. The growing international demand for hazelnut-based spreads has made these nuts the world’s second most valuable tree-nut crop after almonds.
India is headed for an exponential increase in digital payments over the next four years, according to a new study by Google (Alphabet Inc.) and Boston Consulting Group released on Monday.
The digital payments industry in Asia’s third-largest economy will grow by 10 times to touch $500 billion by 2020 and contribute 15% of gross domestic product (GDP), the report predicted.
Ever-increasing penetration of smartphones, the entry of several non-banking institutions offering payment services, consumer readiness to adopt digital payments, progressive changes in the regulatory framework will power the trend, it said.
“Spurred by smartphone penetration, and supported by progressive regulatory policy, the digital payments industry is at an inflection point and is set to grow 10x by 2020,” said Rajan Anandan, vice-president of Google, South-East Asia and India.
There is a huge unmet demand for credit among small enterprises and NBFCs are cashing in on this as their distribution reach remains unmatched by banks in areas such as micro-finance, used vehicle financing and rural housing, says a Morgan Stanley report.
According to the financial services major, though private sector banks are leading the charge in retail sector, non-banking finance companies (NBFCs) are quite close on their heels.
“Just as stock market investors were writing obituaries of NBFCs that did not make the cut for banking licences, a new cycle was emerging for some of these companies,” the report said, adding asset quality for top-tier NBFCs over the last two years has held up better than expected.
The top 12 NBFCs with about USD 92 billion of retail loans are barely 5 per cent smaller in size than the corresponding retail books of the top five private sector banks, Morgan Stanley said, quoting Kotak Institutional Equities and company data.
Moreover, NBFCs now have a large presence in most retail lending segments and are estimated to account for a 44 per cent share in automobile loans and a 52 per cent share in loans against property, it added.
Sri Lanka has a significant low-income population segment whose financial needs are served by an estimated 14,000 financial institutions in the country, which directly or indirectly provide microcredit products. However, a majority of these financial institutions are either financial NGOs, not-for-profits or organizations that follow a local cooperative structure.
For-profit formal sector microfinance institutions are few, and the market is dominated by five or six players that serve the majority of the low-income customer segment. There is limited industry research on the country’s microfinance sector, and Intellecap has attempted to bridge this gap by presenting the following market opportunities and growth strategies, based on conversations with leading practitioners, policy makers and capital providers immersed in the Sri Lankan market.
Strategies for market growth in Sri Lanka
Among South Asian countries, Sri Lanka is unique in terms of population distribution by income, with a majority of its households in the low-income and middle-income segments rather than the lowest (or poorest) segment (Figure 1). As per our assessment, the country’s 2.6 million low-income households (which we’ve termed the aspirers) represent the target customer segment for MFIs in Sri Lanka. While market penetration data for the existing microfinance institutions (MFIs) and non-bank financial companies (NBFCs) in Sri Lanka is not readily available, based on Intellecap’s analysis, the total number of customers served by the five largest MFIs/NBFCs is estimated to be around 1.3 million customers. Meanwhile, the Lanka Microfinance Practitioners’ Association estimates the total number of customers served by 24 smaller MFIs in the country to be nearly 0.7 million.
Lack of innovation and variety in product features to serve different income structures and customer requirements is one of the major constraints to increasing financial access in Nepal, a report prepared by Making Access Possible (MAP), Nepal, has said.
MAP Nepal is an initiative under the Access to Finance programme implemented by the Nepal Rastra Bank (NRB) and funded by the Danish government, Department for International Development (DFID) of the United Kingdom and the United Nations Capital Development Fund (UNCDF).
“The country has a large number of financial service providers but their financial product offerings are homogeneous,” the report entitled “Financial inclusion Roadmap 2017-22” states.
According to the report, existing financial services and products are skewed in favour of salaried workers and micro, small and medium enterprises (MSMEs)—the population segments that are more urbanised and have the highest income and education levels.
Those who are on average poorer, based in rural areas, and moderately educated—farmers, dependants and irregular earners—are under served. “This is largely due to the absence of appropriate products and access points to suit their needs,” it said.
Mentioning the finding of the “Financial Inclusion Country Report of Nepal 2014”, the report said the country fares better than other MAP countries in terms of financial access, with 61 percent of the adult population having access to formal finance, and only around 18 percent of the adult population completely excluded from financial services (both formal and informal).
|Advanced Financial Analysis for Microfinance Practitioners
Sep 18 – 23, 2016 | London, United Kingdom
|Global SME Finance Forum
Sep 19 – 21, 2016 | Beijing, China
|The SEEP Network 2016 Annual Conference
Sep 19 – 21, 2016 | Arlington, VA – United States
The South Asia Micro-entrepreneurs Network (SAMN) is a regional body working to enhance financial inclusion among low-income population in the region. SAMN achieves this by improving knowledge, business environment and capital flows for the microfinance industry across six countries in the region: Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka. SAMN’s members are national networks from these countries. Thus, SAMN is the representative voice of the South Asian Micro-entrepreneurs community reaching more than 60 million low-income customers in the region.