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Financial literacy

Souteast Asia: digital finance is key for financial inclusion

The 32nd summit of the Association of Southeast Asian Nations (ASEAN) held from Apr. 25-28 2018 reflected the priorities given to the Association by the current Presidency, Singapore. The city-state led the works, promoting two main principles: “resilience” and “innovation”. Singapore aims to put itself forward as a development model in planning, urban technology and digital financial services (Fintech). This innovative sector, together with cryptocurrencies, is the basis of a cooperation agreement signed last October by the central banks and financial regulators of Singapore and Hong Kong; the two rival Asian financial centres view digitalisation as holding possible mutually beneficial potential for cooperation. These advanced cities cohabitate in the region with other relatively underdeveloped realities in terms of financial inclusion and literacy. Asia Pacific is currently made up of 25 countries, roughly a quarter of the global population and a fifth of all people earning a daily wage lower than two dollars; moreover, according to World Bank data, a quarter of the global population without a bank account lives in this area.


Southeast Asia has made significant and generalised progress towards financial integration over the past 20 years, especially over recent years, according to a study published this year by the Organisation for Economic Co-operation and Development (OECD) entitled “Financial Inclusion and Consumer Empowerment in Southeast Asia” and the latest annual issue of the Brookings Institution’s Financial and Digital Inclusion Project (FDIP). The latter analyses 21 countries based on four fundamental criteria: “Country Commitment” – the nation’s commitment to financial integration; “Mobile Capacity” – the development and capacity of the mobile market, crucial for spreading digital savings and payment systems through smartphones, and all linked innovative systems; “Regulatory Environment”; “Adoption” – the demand for financial and digital services in those countries. Among the Asian countries included in the study are the Philippines, Indonesia, Bangladesh and Vietnam which make up emblematic case studies of the huge differences that characterise the region’s markets.


For example, the Philippines has a high level of regulations and its institutions are strongly committed to financial inclusion but are penalised by geographical barriers that obstruct economies of scale and therefore the growth of the national market. Just 31 percent of the adult population has a bank account but, despite this, it ranks first among Southeast Asian states in the study. Bangladesh, on the other hand, while having one of the least developed markets in the region, is showing rapid growth in certain sectors, such as mobile telephone users, that could be the starting point for further development. Bangladesh has a high rate of awareness but a very low level of financial literacy. Indonesia has made important progress in regulation and the development of the technological ecosystem and services – such as the interoperability of mobile payment platforms – but is still systemically and heavily dependent on cash money which is obstructing digital financial services.


The common denominator among Southeast Asian states appears to be the overcoming of many crucial barriers to financial inclusions identified by the World Back in developing countries; among these are the lack of valid identification documents, regulation to protect consumers and “utility”. As stressed by the World Bank, opening bank accounts is symptomatic of true progress only if “it is the first step and (…) threshold towards other financial products such as savings, credit and insurance programmes”. The ASEAN, due to its already developed mobile ecosystem, appears to be positioned to benefit from the digital financial system that, with Singapore’s presidency, seems to have taken on strategic priority. According to the Asian Development Bank (ADB), based on consultations with dozens of representatives in some of the major markets in the area, digital finance may contribute to the Gross Domestic Product (GDP) of the ASEAN countries by between 9 and 14 percent, even in already relatively developed economies such as Indonesia and the Philippines. Financial integration in its digital form could guarantee Southeast Asia’s future as one of the main players in the global economy.