Asia’s Aversion to Bank Accounts Is a Big Deal

(Bloomberg Opinion) -- 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 U.S. 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 percent, the World Bank reckons. But the details are less encouraging. That 71 percent is little changed from four years ago. In Southeast Asia’s biggest economy, Indonesia, just 49 percent own an account.

In the most populated members of the Association of Southeast Asian Nations, a group of 10 nations lauded for their economic progress and potential, the proportion is well below 50 percent. India is doing better at about 80 percent, 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 gross domestic product. Yet almost every Singaporean has a bank account — around 96 percent — 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. Panelists 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 anti-graft agency is taking action, but also meeting stiff resistance from factions within the government and parliament, says 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 ATM 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, Warburg Pincus and Sequoia as well as Google, Alibaba and Tencent, 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.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

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

Daniel Moss writes and edits articles on economics for Bloomberg Opinion. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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