Sir John Peace
Chairman, Standard Chartered and Burberry Group
Through a financial services lens, one of the main barriers to achieving a truly inclusive capitalism, especially in emerging markets, is financial exclusion. As Standard Chartered's recent report, Financial Inclusion: Reaching the Unbanked, highlights, almost half of all adults in the world are 'unbanked', with most living in South Asia, Africa and the Middle East.
Financial inclusion benefits economies, reduces income inequalities and improves social inclusion. Those with access to financial services cope better with fluctuating income and sudden expenses, and are less vulnerable to exploitative lenders. They are more likely to be healthy and able to access education, improving their chances of pulling out of poverty.
Entrepreneurs also benefit, becoming able to establish and expand new businesses. And whole economies benefit as private income and savings are spent, jobs created and businesses brought into the formal sector thereby raising tax revenues and making workers eligible for better protection and benefits.
Financial inclusion initiatives are not new but we are now better able to achieve success. Recent technological advances, particularly in mobile banking, have made it more economically viable for banks to reach the unbanked by drastically reducing transactions costs.
A great example of this is M-PESA, which was launched in Kenya by Safaricom in 2007. Its initial aim was to facilitate low-value money transfers, with subscribers holding e-accounts accessed through their mobile telephones.
The transaction value is low, capped at US$500, and is performed via a network of retail stores, or agents, who receive commission for this service. There are now over 60,000 agents in Kenya, up from 300 in 2007, a phenomenal increase.
M-PESA has been so successful in Kenya that it is now used by over two-thirds of the adult population, with over 40% of the country's gross national product flowing through it. While the initial transactions were limited to money transfers and bill payments, services have now been extended to making payments, disbursing salaries and other bulk transfers.
But despite advances in technology, other barriers to financial inclusion remain. Some barriers are 'natural', such as long distances to branches for those in rural communities. Others stem from a lack of hard or soft infrastructure, such as banks' ability to access credit information that enables them to lend. These factors will undoubtedly improve as digital and mobile banking develops further and smart phone usage increases.
The lack of suitable products is another barrier, as is financial literacy. Financial inclusion will improve if products cater to the needs of individuals and microenterprises, such as low-value saving and lending products, credit bureaus and community savings schemes.
Regulation is also an issue: those currently unbanked may not have formal IDs, meaning they cannot pass the stringent customer on-boarding requirements imposed by governments on banks in a bid to prevent money laundering and terrorist financing.
Tackling these barriers is not easy. Real progress will require coordinated action from governments, regulators and the private sector, including commercial banks. And the challenges in every country will be different.
But the good news is that the barriers can be overcome, and the benefits of inclusion are overwhelmingly greater than the risks. If we get it right, the benefits to people and societies could be immense; we would be one large step closer to a truly inclusive capitalism.