FINANCIAL INCLUSION, REGULATION, AND EDUCATION Asian Perspectives Financial inclusion is receiving increasing attention as having the potential to contribute to economic and financial development, while at the same time fostering more inclusive growth and greater income equality. However, 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. This book surveys the experience of some developed and Asian emerging economies to assess factors aecting the ability of low-income households and small firms to access financial services, including financial literacy, financial education programs, and financial regulatory frameworks, and identify policies that can improve their financial Asian Perspectives AND EDUCATION REGULATION, FINANCIAL INCLUSION, access while maintaining financial stability. It identifies successful experiences and important lessons that can be adopted by other emerging economies. The studies cover the experiences of Germany, the United Kingdom, Bangladesh, India, Indonesia, the Philippines, Sri Lanka, and Thailand. The book takes a practical and holistic approach to issues related to financial FINANCIAL INCLUSION, inclusion. For example, innovative methods of promoting financial access, such as mobile phone banking and microfinance, require corresponding innovations in regulatory frameworks, perimeters, and capacity. Moreover, programs in the areas of REGULATION, AND financial education and consumer protection are needed to enable households and small firms to take full advantage of improvements in financial access. EDUCATION About the Asian Development Bank Institute Asian Perspectives The Asian Development Bank Institute, located in Tokyo, is the think tank of the Asian Development Bank. The institute aims to identify eective strategies to improve policy and development management in Asia and the Pacific. We work with an extensive network of partners in the region and globally to influence policies EDITED BY NAOYUKI YOSHINO AND PETER J. MORGAN on poverty reduction, inclusive growth, the environment, regional cooperation, infrastructure development, middle-income countries, and private sector development. ASIAN DEVELOPMENT BANK INSTITUTE -- Kasumigaseki, Chiyoda-ku Tokyo, - Japan Tel Fax www.adbi.org ASIAN DEVELOPMENT BANK INSTITUTE PANTONE 281C FINANCIAL INCLUSION, REGULATION, AND EDUCATION Asian Perspectives EDITED BY NAOYUKI YOSHINO AND PETER J. MORGAN ASIAN DEVELOPMENT BANK INSTITUTE © 2017 Asian Development Bank Institute All rights reserved. First printed in 2017. ISBN 978-4-89974-063-6 (Print) ISBN 978-4-89974-064-3 (PDF) The views in this publication do not necessarily reflect the views and policies of the Asian Development Bank Institute (ADBI), its Advisory Council, ADB’s Board or Governors, or the governments of ADB members. ADBI does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. ADBI uses proper ADB member names and abbreviations throughout and any variation or inaccuracy, including in citations and references, should be read as referring to the correct name. By making any designation of or reference to a particular territory or geographic area, or by using the term “recognize,” “country,” or other geographical names in this publication, ADBI does not intend to make any judgments as to the legal or other status of any territory or area. Users are restricted from reselling, redistributing, or creating derivative works without the express, written consent of ADBI. ADB recognizes “China” as the People’s Republic of China. Note: In this publication, “$” refers to US dollars. Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5, Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan www.adbi.org Contents Figures, Tables, and Boxes iv List of Contributors ix Preface x Abbreviations xii 1 Overview of Financial Inclusion, Regulation, and Education 1 Peter J. Morgan and Naoyuki Yoshino 2 Germany 42 Doris Neuberger 3 United Kingdom 74 Sue Lewis and Dominic Lindley 4 Bangladesh 107 M. A. Baqui Khalily 5 India 143 Abheek Barua, Rajat Kathuria, and Neha Malik 6 Indonesia 169 Tulus Tambunan 7 Philippines 213 Gilberto M. Llanto 8 Sri Lanka 244 Saman Kelegama and Ganga Tilakaratna 9 Thailand 269 Kanittha Tambunlertchai Index 313 iii Figures, Tables, and Boxes Figures 1.1 Relation of per Capita Gross Domestic Product to Deposit Penetration for Adults, 2014 6 1.2 Relation of per Capita Gross Domestic Product to Loan Penetration for Adults, 2014 6 1.3 Share of Small Firms with Credit Lines, 2011 7 1.4 Macroeconomic Impacts of Financial Education 30 2.1 Market Shares of Banking Groups, December 2013 44 2.2 Financial Intermediation through the German Banking System 46 2.3 Loans to Domestic Enterprises and Self-Employed Individuals (Without Securities) 52 4.1 Bank Branch Density, 2004–2013 110 4.2 Microfinance Institution Branch Density, 2004–2013 113 4.3 Cooperative Density, 2004–2013 114 4.4 Intensity of Access to Bank Borrowing per 100 Adults, 2004–2013 116 4.5 Intensity of Access to Bank Deposits per 100 Adults, 2004–2013 117 4.6 Intensity of Depositors per 100 Adults, 2004–2013 117 4.7 Intensity of Borrowers per 100 Adults, 2004–2013 118 4.8 Total Score (Mean) by Age 127 4.9 Total Score (Mean) by Education 128 4.10 Participants Who Received a Passing Mark (40%), by Age 128 4.11 Participants Who Received a Passing Mark (40%), by Education 129 5.1 Present Financial Architecture and Banking System Design 155 5.2 Financial Exclusion in the Micro, Small, and Medium-Sized Enterprise Sector 163 6.1 Outstanding Consumption Loans (in Rupiah and Foreign Currencies) of Commercial Banks and Rural Banks, 2008–2014 178 6.2 Total Credit Received from Commercial Banks in Indonesia by Large Enterprises, and Micro, Small, and Medium-Sized Enterprises, 2011–2014 186 6.3 National Strategy for Achieving Financial Inclusion 204 7.1 Persons with Savings at a Formal Financial Institution 218 7.2 Deposit Accounts per 1,000 Adults in the Philippines, 2004–2013 219 iv Figures, Tables, and Boxes v 8.1a Adults with an Account at a Formal Financial Institution 247 8.1b Adults who Borrowed from a Formal Financial Institution 247 8.2 Financial Services Providers in Sri Lanka 249 8.3 Density of Financial Institutions in Sri Lanka, 1990–2009 251 8.4 Share of Households Accessing Financial Institutions by Type of Financial Institution, 2006–2007 and 2009–2010 253 8.5 Access to Financial Institutions by Income Group, 2009–2010 255 8.6 Extent of Multiple Borrowing in the Microfinance Sector, 2006–2007 and 2009–2010 256 8.7 Regulation of Financial Service Providers in Sri Lanka 260 9.1 Institutional Analysis Framework 271 9.2 Poverty Headcount Ratio at the National Poverty Line and Gini Index 274 9.3 Per Capita Income by Region, 2010 274 9.4 Landscape of All Financial Services Providers (Microfinance and Non-Microfinance) in Thailand 281 9.5 Participation in Microfinance 286 9.6 Number of Cooperatives by Type and Region 287 9.7 Regulation of Financial Services Providers in Thailand 292 9.8 Level of Financial Access for Households in Thailand 295 9.9 Landscape of Financial Access by Product Category 296 9.10 MasterCard Financial Literacy Index, 2012 and 2013 304 9.11 Indebted Households by Region and Rural–Urban Split 304 9.12 Average Debt Per Household by Region and Rural–Urban Split 305 Tables 1.1 Elements of Financial Inclusion Strategies 10 1.2 Strategies for Financial Inclusion 15 1.3 Financial Inclusion Regulatory Measures 18 1.4 Selected Financial Literacy Survey Results from around the World 27 1.5 MasterCard Index of Financial Literacy Report, 2013 28 1.6 Policies and Programs for Financial Education in Asia 32 2.1 Market Shares of Banking Groups, December 2013 45 2.2 Demographic Branch Penetration and Usage of Banking Services at the Three Banking Pillars, December 2013 47 3.1 Households with Access to Transactional and Savings Accounts 79 3.2 Use of Unsecured Credit in the United Kingdom, 2013 81 vi Figures, Tables, and Boxes 3.3 Government Schemes to Promote Access to Finance 91 4.1 Structure of the Banking System in Bangladesh at the End of June 2014 109 4.2 Outreach of Microfinance Institutions in Bangladesh, 2011–2013 112 4.3 Deposits Mobilized by Institutional Source, June 2014 115 4.4 Use of Funds by Institution Type, June 2014 119 4.5 Intensity of Access of Households to Financial Services by Market Type, 2005–2014 122 4.6 Intensity of Access of Bangladesh’s Adult Population to Financial Services 123 4.7 Intensity of Access to Financial Services, 2013 125 4.8 Logit Regression on Financial Inclusion with Different Financial Scores 131 5.1 Structure of Banking in India 146 5.2 Growth in Deposits and Credit in India’s Banking System 147 5.3 Market Share of Different Types of Banks in India 147 5.4 Per Capita Deposits and Credit in Rural and Urban India 149 5.5 Number of Bank Branches in Rural and Urban Centers 149 5.6 ATM Penetration in Various Rural and Urban Centers 150 5.7 Financial Access in Selected Countries 150 5.8 World Bank’s Global Findex 152 5.9 Banking Penetration Progress, 2010–2014 153 5.10 Impaired Assets Ratio 163 6.1 Share of the Adult Population with a Bank Account in the Formal Financial Sector in Indonesia and Other Selected Countries and Regions, 2011 174 6.2 Share of the Adult Population with an Account in the Formal Financial Sector in Indonesia, East Asia, and the