The problem of being unbanked
Jamii.one’s technology is catalyzing financial inclusion for unbanked saving communities
2.3 billion people worldwide live without access to financial services
Around the world, poor, rural, and disenfranchised communities are unable to access savings, loans, and insurance from the formal financial sector - they are unbanked. Among those living below the UN poverty line of $2 per day, 77% do not have a formal bank account. Having access to financial services like loans and insurance can make the difference between a lifetime of extreme poverty or a safe and prosperous future.
The importance of access to financial services
Formal accounts and savings help people smooth their consumption and safeguard against unexpected events such as unemployment, accidents, illnesses, and deaths.
Access to loans is especially important for reducing poverty because it allows people to invest in activities that grow their income. For example, investing in a bread cooker to start selling bread or investing in seeds to increase crop production.
This is why financial inclusion is a prominent enabler for the UN’s Sustainable Development Goal No. 1 No Poverty along with 7 others of the 17 development goals*.
Unbanked people are missing out on a financial ecosystem that would allow them to make the most of what they have and live better lives.
The traditional banking system was not designed for poor people in developing countries
There are many reasons why some cannot access financial services
1. Traditional banking services are too expensive and/or unavailable
Banks are subject to heavy regulation and high money handling costs in developing countries. This increases their overhead and makes their services more costly. Geographically isolated rural communities are even more expensive to service. Classically, this has meant that banks will focus on the higher income segment and overlook lower-income households. In turn, many lower-income households do not see themselves as potential customers for banks and will not actively seek out services from banks. Today, many financial service providers are combining mobile technology with an agent structure, known as mobile banking, to reach rural communities, but the availability of financial services remains unevenly distributed.
2. A lack of official ID, which is a common requirement to receive financial services
States often require banks to implement Know Your Customer (KYC) processes, which require people to own formal identification. However, 1 billion people in the world, mostly living in developing countries, do not own formal ID. It is typically the poorest who lack formal identification making them unable to use financial services. Some countries are now changing these rules to allow banks to service people with very small savings and loans, without formal identification, and allowing for other forms of identification such as School ID. This is known as Tiered KYC or Risk-based KYC.
3. Inability to meet the collateral and credit rating requirements
Financial products must be specifically designed to meet the needs of low-income households. Mobile banking has come a long way in trying to address the needs of lower-income customers. However, fee structures often make these services too costly for the very poorest. Microfinance institutions, popularised by Muhammad Yunus and Grameen Bank, have also made progress but are often limited by collateral requirements that the poorest cannot meet.
The collateral and credit rating prerequisites for loans provision (in both traditional banking and microfinance), exclude the lowest income households. That’s why we’re reinventing how credit history works.
Some adults are more likely to be financially excluded than others. If you are a young adult, a woman, or from a poor, rural household in a developing country, you are more likely to be unbanked.
Financial inclusion aims to improve access to financial services
Globally, recognition of the importance of financial inclusion has grown. Most financial inclusion initiatives focus on connecting the unbanked to financial institutions, including banks and microfinance organisations. At Jamii.one, we’re working to further financial inclusion by strengthening saving communities, building digital and financial literacy, and connecting our users to financial services.
Find out how we contribute to financial inclusion
