Financial Inclusion & ADB: A South-East Asian Analysis – The Special Case of Cambodia

A Brief Address to Financial Inclusion in South-East Asia

Financial Inclusion (FI) denotes the delivery of formal financial products and services uniformly to all segments of a population without any special consideration of their economic circumstances. The momentous advancement experienced by South-East (SE) Asian economies in financial inclusion is noteworthy. The promising SE Asian economy the stride of which in the financial inclusion arena will be explored in this article is Cambodia. Inequalities still persist at the country levels in the emerging SE Asian economies—fundamentally owing to limited income potential and inadequate levels of financial inclusion of the underserved and marginalised segments of the society. While the ecosystem looks promising with the presence of a couple of FinTech leaders in the Asian region, the region in its entirety suffers on crucial parameter namely online (internet) transactions, e-payments, mobile money, and G2P transfers. While the bank account ownership worldwide rose to 62% in 2014 from 51% in 2011—according to the Global Findex Database—, the percentage of the adult population falling under the lower and middle-income Asia-Pacific economies’ category having an account in a standard financial institution stood to be less than mere 27%. Furthermore, the percentage of the population having borrowed from formal financial institutions is below 10%.

ADB & Financial Inclusion: The SE Asian Strategic Framework

At the Asian level, the Asian Development Bank’s (ADB)—an international development finance institution headquartered in Manila, Philippines, dedicated to reducing poverty in Asia and the Pacific—strategic framework, “Strategy 2020,” stresses considerably on financial inclusion as an exceptional tool to ensure overall financial sector development. The ADB acknowledges that “digital finance presents a potentially transformational opportunity to advance financial inclusion,” in its report titled, “Accelerating Financial Inclusion in South-East Asia with Digital Finance.” The ADB stated (in 2008) in the strategic document, “Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank,” 2008 – 2020, Manila; and in ADB. 2014. “Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific,” Manila, the following: “Without access to formal financial services, the unserved and underserved segments of society will be excluded from growth and its benefits.”

Financial Inclusion: The Special Case of Cambodia

Cambodia has a population of 14 million, and it accounts for over 3 million mobile phone subscriptions. The poverty rate in Cambodia is nearly 15%, according to the data from the World Bank. Accessing basic financial services is challenging as even less than 20% of adults account for having access to financial services whereas 80% of Cambodia’s population resides in rural areas. In 2011, when the CGAP’s (Consultative Group to Assist the Poor) annual meeting was held in Cambodia, the region was blooming with a thriving microfinance environment, enabling regulations, sturdy microfinance institutions (MFIs), and considerable investor and donor organisation attention. Having served 1.2 million people with microfinance (MF) industry services, this backdrop led to the creation of a strong foundation for FI in Cambodia. As 2014 approached, the MFI services started reaching 1.8 million people. However, it should be noted that mere 17% of the adult population had access to banking services in Cambodia (according to the FinScope Consumer Survey) as of July 2016’s Topline Findings. Per the survey, while the adult population formally served with the FI services stood at 59%—forming the FI rate of Cambodia–, 29% was totally excluded. The MEKONG Financial Inclusion Forum held during 11 – 14 July 2016 in Phnom Penh, Cambodia, stressed on the crucial issues, viz.: national development strategies, regulation and supervision, employing technology and unconventional delivery channels, provisioning client education and consumer safeguard, and creation and promotion of coordinated action and partnerships of all stakeholders namely the private sector, government, and the development partners. However, in Cambodia, formal institutions are still limited to serving a mere 16% of the demand for savings services from people in the FI target segment. Whereas 22% of adults in Cambodia own dormant saving accounts (Findex, 2017), there are also around 650,000 garment factory workers (excluded from formal financial services) remitting money to their family members in rural areas. This needs to change with a synergised financial technology innovation in the Kingdom of Cambodia.