The World Bank Group has come up with a new report for assessing financial inclusion steps taken by different countries around the world. Titled “Global Findex Database 2014: Measuring Financial Inclusion Around the World”, the report finds that India has a whopping 43 per cent of dormant accounts, one of the highest in the world. Excerpts on relevant parts of the report dealing with India and comparison with the countries the World Bank considers having similar economic footing:
In August 2014 the Indian government launched the Pradhan Mantri Jan Dhan Yojana scheme for comprehensive financial inclusion with the goal of opening a bank account for every household. To encourage new accounts, the scheme offered attractive features such as zero balances, overdraft facilities, and free life insurance. By the end of January 2015 it had led to the opening of 125 million new bank accounts; as a point of comparison, a 2013 survey had found that fewer than 400 million people in the country had an account.
But the scheme has attracted criticism for expanding the public sector’s role in banking—more than 97 percent of the new accounts are at public banks. In addition, 72 percent of the accounts show zero balances. This may be in part because many new account holders may not yet have had an opportunity to use their accounts—especially since the accounts were not set up for an explicit purpose, such as to receive wages or government transfer payments. Moreover, only 39 percent of all account holders in India own a debit or automated teller machine (ATM) card, and using an account might be inconvenient and time-consuming if every transaction requires using a bank teller.
Both China and India saw strong growth in account ownership between 2011 and 2014—in China account penetration increased from 64 percent to 79 percent, and in India from 35 percent to 53 percent. Translated into absolute numbers, this growth means that 180 million adults in China and 175 million in India became account holders—with the two countries together accounting for about half the 700 million new account holders globally. A closer look at who the newly banked are in these two countries reveals differences in how that growth was distributed across groups of individuals.
In China, while account penetration increased by 15 percentage points on average, the growth varied substantially across different groups. For example, account penetration grew by 26 percentage points among adults in the poorest 40 percent of households but by only 8 percentage points among those in the richest 60 percent. It grew faster among those in the poorest 40 percent of households in part because there was more room for growth in that group; by 2011, 76 percent of adults in the richest 60 percent already reported having an account. Account penetration also grew more strongly among adults living in rural areas and among older adults. There was no clear difference in rate by gender, however; account penetration grew by about 15 percentage points among both men and women.
For India, by contrast, the data show little such variation: the overall growth in account penetration of 18 percentage points is evenly reflected across all groups of individuals for which the data are broken down.
China, India, and Indonesia countries together account for 38 percent of the world’s unbanked. India is home to 21 percent of the world’s unbanked adults and about two-thirds of South Asia’s. China accounts for 12 percent of the world’s unbanked and Indonesia for 6 percent; together they account for three-quarters of the unbanked in East Asia and the Pacific. The dormancy rate in South Asia is especially high at 42 percent; the average across all other developing regions is less than 20 percent. India, with a dormancy rate of 43 percent, accounts for about 195 million of the 460 million adults with a dormant account around the world. In high-income OECD economies the dormancy rate is 5 percent. economies, including India, high dormancy rates may reflect a large number of newly opened accounts that have not yet been used.
The BRICS countries—Brazil, the Russian Federation, India, China, and South Africa—illustrate how widely the use of accounts for making and receiving payments can vary even among countries with broadly similar levels of account penetration. Among these five countries, China has the highest share of adults with an account, at 79 percent. But South Africa has the highest share of adults who reported using an account to make or receive payments, at 60 percent, followed by the Russian Federation with 51 percent. In Brazil and China about 40 percent of adults reported using an account to make or receive payments. And in India not only is account penetration comparatively low, at 53 percent, but so is the use of accounts for payments: a mere 15 percent of adults reported using an account to make or receive payments.
Less than 5 percent of adults around the world reported borrowing from a private informal lender. But private informal lenders are the second most common source of new loans in South Asia, where 11 percent of adults reported borrowing from one. This result is driven by India and Nepal, where more than 13 percent of adults reported borrowing from a private informal lender. And a few countries are exceptions to the overall pattern: these include Myanmar, Panama, the Philippines, Saudi Arabia, and South Africa, where more than 10 percent of adults reported borrowing from a private informal lender.
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