Asia’s aversion to bank accounts is a big deal

THERE’S a flaw in the forecast for an ever-rising Asia: A vast gap in the financial system. Big slices of the population don’t have a bank account.

It’s hard to see the region reaching its full potential, let alone surpassing the US as an economic superpower, until this bridge is crossed. An economy without broad use of banks cannot grow into a superpower.

East Asia and the Pacific seem to be making progress on this. Seventy-one percent of adults have a bank account or equivalent at a mobile money provider, a bit more than the global proportion of 69%, the World Bank reckons.

But the details are less encouraging. That 71% is little changed from four years ago. In South-East Asia’s biggest economy, Indonesia, just 49% own an account.

In the most populated members of the Asean, a group of 10 nations lauded for their economic progress and potential, the proportion is well below 50%.

India is doing better at about 80%, but short of where it needs to be.

This lopsided nature further reveals itself in the size of the overall pie. Indonesia overtook Singapore in 2016 as the largest financial services market in Asean, according to PwC.

On one level, this is a function of Indonesia’s huge population and GDP. Yet almost every Singaporean has a bank account — around 96% — and the city is home to an array of sophisticated finance operations.

You can see the potential for a place like Indonesia to pull ahead and meet its destiny.

Just imagine where it would be if its people and businesses were fully banked! Until then, some of the more bullish projections about Asia must be tempered.

What’s so great about a bank account? Once a person has an account, they have a better chance of fully participating in the economic life of their country, and their country has greater odds that gender, racial and income inequality can be addressed.

Panellists at the World Economic Forum on Asean in Hanoi this month, in which I participated, wrestled with the subject.

The more transactions that continue in cash, the harder it also is to tackle corruption. Indonesia’s antigraft agency is taking action, but also meeting stiff resistance from factions within the government and Parliament, said Transparency International.

Not to pick on Indonesia. The Philippines, another seriously underbanked economy, and India struggle as well.

Technology may hold part of the answer. As mobile payment systems proliferate around the globe, it’s entirely possible developing countries will just leapfrog over the bank branch and automated teller machine structure and go mostly digital.

It’s tough for banks to cover the 17,000 islands that make up Indonesia, for example. Almost twice as

many Indonesians have mobile phone subscriptions as have bank accounts, the International Finance Corp estimates.

That’s spurring a surge in e-payments and investment from KKR and Co Inc, Warburg Pincus LLC and Sequoia Capital, as well as Google LLC, Alibaba Group Holding Ltd and Tencent Holdings Ltd, the Nikkei Asian Review reported.

However economies get there, it’s the destination that’s important. Without a financial system to service heavyweights, Asia can’t rule the world. — Bloomberg


This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.