Assessing policies to promote financial inclusion, regulation, and education in emerging Asia

Assessing policies to promote financial inclusion, regulation, and education in emerging Asia

Financial inclusion has been receiving increasing attention for its potential to contribute to economic and financial development while fostering more inclusive growth and greater income equality. There are numerous arguments in favor of increasing financial inclusion, and a large body of evidence shows that increased financial inclusion can significantly reduce poverty and boost shared prosperity.1 Greater access to financial services by households can help smooth consumption, ease cash shortages, and increase savings for retirement and other needs, although the evidence on microfinance is less positive. Greater access by small and medium-sized enterprises can allow them to take greater advantage of investment projects with potentially high returns and participate in international trade. Greater financial access may provide side benefits as well, such as greater financial stability and efficacy of monetary policy. Governments can also take advantage of greater financial access to rely more on cash transfer programs and reduce corruption and money laundering.

G20 leaders recently approved the Financial Inclusion Action Plan and established the Global Partnership for Financial Inclusion2 to promote the financial access agenda. Further, the Asia-Pacific Economic Cooperation (APEC) Finance Ministers’ Process has a dedicated forum looking at financial inclusion issues,3 and the implementation of the Association of Southeast Asian Nations (ASEAN) Framework on Equitable Economic Development has made the promotion of financial inclusion a key objective (ASEAN 2014). Development organizations have been responsive as well; for example, the Asian Development Bank (ADB) approved 121 projects (amounting to US$2.59 billion as of 2012) to support microfinance in Asia and the Pacific (ADB 2012). Many individual Asian economies have also adopted strategies on financial inclusion as an important part of their overall strategies to achieve inclusive growth.

Although substantial progress has been made, there is still much to achieve. East Asia, the Pacific, and South Asia combined account for 55% of the world’s unbanked adults, mainly in India and the People’s Republic of China. Within emerging economies in Asia, there is a high degree of variation of those who have accounts. Account penetration is nearly universal in Singapore and the Republic of Korea, but is much lower in some other economies—less than 2% in Turkmenistan and less than 20% in Afghanistan, the Kyrgyz Republic, Pakistan, and Tajikistan (Demirgüç–Kunt et al. 2015). A similarly wide range can be found for other indicators of financial inclusion, such as having a loan from a formal financial institution or the share of small firms having a bank loan.

The Asian Development Bank Institute (ADBI) has been conducting a study of the experiences of advanced and emerging economies—Germany, the United Kingdom, Bangladesh, India, Indonesia, the Philippines, Sri Lanka, and Thailand—to assess factors affecting the ability of low-income households and small firms to access financial services, including financial literacy, financial education programs, and financial regulatory frameworks, and to identify policies that can improve financial access in emerging Asian economies while maintaining financial stability and ensuring adherence to regulations regarding money laundering and anti-terrorist financing. Preliminary country studies were issued as ADBI Working Papers, and overall findings of the study were summarized in Morgan and Yoshino (2016). The final report is expected to be published in early 2017.

The study takes a practical and holistic approach. For example, innovative methods for promoting financial access, such as mobile phone banking and microfinance, require corresponding innovations in regulatory frameworks, perimeters, and capacity. Policies to promote financial inclusion need to be aligned with economic incentives, otherwise the results may miss targeted groups. Moreover, programs in the areas of financial education and consumer protection are needed to enable households and small firms to take full advantage of improvements in financial access.

The study describes numerous policies that can help address supply-side barriers to financial access, including: (i) establishment of inclusive financial institutions, such as microfinance institutions, credit cooperatives, special purpose state banks, post offices, and agents; (ii) subsidies for borrowing; (iii) low-cost and innovative financial products and services, such as no-frills accounts and microinsurance; (iv) innovative technologies, such as mobile phone banking and e-money; (v) innovative ways to increase credit access, such as credit databases, broader ranges of collateral, credit guarantee programs, and innovative financing vehicles; and (vi) innovative regulations, including proportionate regulation and national identification schemes. Important lessons include the importance of aligning financial inclusion measures with economic incentives and applying “proportionate regulation,” i.e., tailoring the extent of supervision and regulation to the level of systemic risk of the financial institutions involved. The study emphasizes the desirability of establishing national strategies for financial inclusion to set priorities and allocate responsibilities.

Demand-side barriers to financial inclusion can be addressed by: (i) measures that directly increase the funds available to low-income households, such as cash transfer programs; (ii) effective supervision and regulation of financial institutions, including microfinance institutions and moneylenders, to increase the general level of trust; (iii) implementation of strong consumer protection programs to ensure the sale of appropriate products and services, adequate disclosure, and the prevention of aggressive collection practices; and (iv) financial education programs for both households and small and medium-sized enterprises, so that they can make wiser choices related to financial products and services, as well as maintain better financial records to increase their bankability.4

Financial literacy levels in Asia are generally low. Asia’s experience in the area of financial education is still limited, but there are significant potential gains from more concerted policy efforts in this area. First, more national surveys of financial literacy are needed, particularly of poorer Asian countries, with consistent and internationally comparable methodologies. Second, effective national strategies for financial education need to contain four key elements: (i) coordination among major stakeholders, including regulatory authorities, educational institutions, financial institutions, and civil society institutions; (ii) emphasis on customer orientation and addressing demand-side as well as supply-side gaps; (iii) combination of broad-based functional interventions, such as in school curricula, and targeted programs for vulnerable groups according to availability of resources; and (iv) adoption of a long-term time line with flexibility to respond to changing needs. Inclusion of financial education in school curricula is a particularly important objective.

1 See World Bank (2014) for a comprehensive assessment of this literature.
2 Global Partnership for Financial Inclusion. (
3 The annual forum was held most recently in Peru in May 2016. (
4 See Yoshino, Messy, and Morgan (2016) for a detailed assessment of financial education strategies to promote lifetime financial planning.

Asian Development Bank (ADB). 2012. Technical Assistance for Improving Financial Inclusion in Asia and the Pacific. Manila: Asian Development Bank.
Association of Southeast Asian Nations (ASEAN). 2014. The ASEAN Framework for Equitable Economic Development.  (accessed 2 February 2016).
Demirgüç–Kunt, A., L. Klapper, D. Singer, and P. Oudheusden. 2015. The Global Findex Database 2014: Measuring Financial Inclusion around the World. Policy Research Working Paper 7255. Washington, DC: The World Bank.
Morgan, P., and N. Yoshino. 2016. Overview of Financial Inclusion, Regulation, and Education. ADBI Working Paper 591. Tokyo: Asian Development Bank Institute.
World Bank. 2014. Global Financial Development Report: Financial Inclusion. Washington, DC: The World Bank.
Yoshino, N., F.–A. Messy, and P. Morgan, eds. 2016. Promoting Better Lifetime Planning through Financial Education. Singapore: World Scientific.

Photo: By Jaimoen87 (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Naoyuki Yoshino

About the Author

Naoyuki Yoshino is Dean of the Asian Development Bank Institute.
Peter J. Morgan

About the Author

Peter J. Morgan is senior consulting economist and co-chair of Research at the Asian Development Bank Institute.
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