What’s up with big banks and financial inclusion?

financial inclusion

Over recent years we have seen a steady increase in companies adopting sustainability policies and approaches.

In 2016, over 9,000 companies worldwide signed the UN Global Compact signifying their promise to uphold social responsibility and work towards universal sustainability principles. This trend highlights the need and want for responsible and inclusive businesses. Using the Datamaran research tool, we set out to find out which of the world’s leading banking services are part of this trend, looking at financial inclusion in particular.

According to data from The World Bank there are an estimated 2 billion adults worldwide who do not have an account with a formal financial institution.

Being financially excluded means not having access to any formal financial services, like credit or savings facilities, and can significantly increase the risk of social exclusion and poverty. As financial difficulties often lead to stress, health and well-being are also affected. By placing an importance on providing financial services to underserved communities, greater equality within a society can be achieved and the risk of poverty and social exclusion can be reduced.  With so many being excluded from even the most basic financial services, this is an opportunity for banks to address a social issue within their field of expertise.

We sought to find out to what extent banks incorporate financial inclusion as a priority in their approach. From the 384 different banking services that are included on the Datamaran database, we found that 243 did mention financial inclusion in their 2017 Financial Report and Statements.

Datamaran analyses company reports to find out how and if they are mentioning a specific topic – in this case financial inclusion. The algorithm then assigns each company an emphasis score ranking them low, medium or high. This score is based on the number of times a topic is mentioned, the number of hits per topic, the location of the mention, and number of topic mentions per sentence. For each ranking assessment grammar rules are also applied, for example if a company states it does not disclose information on a specific topic or that it is not a priority, then this topic and mention is not counted in the analysis.

 

There were a total of 141 banks identified as not mentioning financial inclusion or any related issue at all. From the 243 companies that were identified as mentioning financial inclusion, 177 were ranked ‘low’.

This raises questions as to why so many financial services are placing a low priority on financial inclusion strategies. In an article published earlier this year by EY[1], it was suggested that in fact, in the last decade banks have had to prioritise growth and reputation. With exposure to scandals and an increase in public scrutiny there has been a need for banks to focus their attention on repairing and rebuilding trust with the public. At the same time, in the aftermath of the global financial crisis the industry has been forced to prioritise growth and profitability. The article goes on to suggest that banks are left struggling to find a way to do both.

Working towards increased financial inclusion can be seen as the solution to the problem of addressing both issues.  Providing services to those previously excluded has the potential to benefit the wider society as well as increase profitability by opening up banks to new and emerging markets. One example of how increased financial inclusion makes good business sense is seen when lending to financially excluded women. There is a gender disparity when it comes to accessing financial services and women are more likely to be unbanked. However, there is a depth of research identifying women as more reliable borrowers as they are more likely to repay their loans on time. You can read more about how banks can grow their profitability by being more inclusive in a study conducted between Accenture Development Partnerships and CARE International.

Flying the flag for financial inclusion

There are a number of organisations that are flying the flag for financial inclusion and its importance. In Belgium BNP Paribas Fortis SA recently increased their commitment to supporting MicroStart, a microfinance institution providing microcredit to people in Belgium. Banco Popular in Spain were recognised in 2016 for their social micro credits programme and also listed ‘fostering access to banking for vulnerable groups’ as one of their key initiatives.

In the UK, Lloyds Banking Group and Royal Bank of Scotland both place importance on the need for financial education and helping people become more financially aware.

UK based leading banks ranked for their prioritisation of financial inclusion:

Unsurprisingly, the European Bank of Reconstruction and Development (EBRD) rank high for their references and efforts towards inclusion. The promotion of economic inclusion is listed as one of their key strategic themes. As a development bank it is no revelation that their reports talk heavily about their work toward supporting international causes. In 2016 EBRD announced a financing package of up to $900million dollars supporting Syrian people. This will support private sector and infrastructure projects in Turkey and Jordan, which host an estimated 2.8 million and 1.4 million Syrian refugees, respectively. EBRD are also committed to supporting female business growth – their Women in Business programme in Kazakhstan provides women with the finance and advice they need in order to grow their business.

EBRD is a development bank, which by default makes their aims socially focused and closely aligned with economic development and inclusion, but this should not stop other banking services striving to do a similar thing. Perhaps EBRD should serve as a benchmark for the banking sector providing inspiration for how and why big banks could do more.

Financial inclusion and the development goals

While financial inclusion is not a specific Sustainable Development Goal (SDG) in itself, greater access to financial services is a key factor to achieving many of the existing goals. The goals addressing poverty (SDG1), hunger (SDG2), gender equality (SDG5), decent work and economic growth (SDG8), industry (SDG9) and inequality (SDG10) all include some reference to financial needs, services or inclusion in their measuring targets.

The goal for addressing poverty states in target 1.4 that “By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources… and financial services, including microfinance.” [2] Target 2.3 for the goal addressing hunger wants to see agricultural productivity double for small-scale food producers and it identifies that making financial services and knowledge more accessible is a way of helping achieve this.

Whilst a number of the goals have acknowledged there is a need for greater access to financial information and services we are now asking if that is enough? Goal four striving for quality education makes no reference to financial education or literacy in its targets. With so many of the other goals identifying that access to financial services and financial infrastructure is important, we also need to equip people with the knowledge, understanding and education to make use of these services. Target 4.6 mentions adult education in literacy and numeracy so perhaps financial knowledge and literacy should also be considered.

MicroLoan Foundation is a UK registered charity that is actively addressing the issue of financial exclusion amongst some of the poorest women in the world. We work in rural and remote locations across Malawi, Zambia and Zimbabwe, far from economic centres and formal employment opportunities. Many women are left financially excluded and our priority is to make finance and financial education accessible to them so they can break through the barriers of poverty.

We increase financial inclusion by providing financial literacy and business training and by creating opportunities for women to start their own businesses. This empowers women, giving them financial independence and stronger economic decision-making power. The businesses not only provide women with a way to lift themselves and their family out of poverty, but also help bolster economic activity and employment opportunities in their communities.

Moving forward

Financial exclusion is inextricably linked to poverty and for those who are financially excluded, supporting their family and keeping a roof over their head is a struggle. The more banking services that begin to prioritise and push for greater inclusion, the greater equality there will be in society. Financial exclusion is a problem in all parts of the world and there is a need for increased education and inclusion for the young, for the poor, for women and for rural communities. When these groups are considered and supported, individuals, families and communities will begin to prosper. This will help will drive wider economic growth and it would go a long way to restoring trust and confidence in banks.

This year MicroLoan was chosen to be a charitable partner of Datamaran – the global leader in Software as a Service (SaaS) solutions for non-financial risk management. It was this software that allowed us to conduct the research for this article and in turn allow us to share these findings with you. We would like to thank the wonderful team at Datamaran for their support and if you would like to partner with MicroLoan Foundation or find out more about what we do please contact us on contact@mlf.org.uk.

[1] https://www.ey.com/en_gl/trust/can-inclusive-banking-drive-economic-growth-in-emerging-markets

[2] https://sustainabledevelopment.un.org/sdg1