National economic systems in many countries, including those in the ASEAN region, are becoming over-dependent on foreign capital and aid. Meanwhile, income inequality is rising fast in the region—both within and between countries—threatening to undo historic gains in economic and human development, as well as the region’s political stability. Cambodia, Lao PDR, Myanmar and Viet Nam in particular are lagging behind their more developed neighbors, both in economic and social terms. Tackling the region’s high levels of financial exclusion will be necessary to halt and reverse these trends. The 2015 creation of the ASEAN Economic Community and a burgeoning regional identity has opened up a critical opportunity to make this happen.
Close to 60 percent of the 600 million people in the ASEAN region are using informal mechanisms to manage their money, meaning individual people and micro- and small-sized enterprises are denied the protection, choice and reliability of regulated financial services. Such financial exclusion hinders the development of Asia’s most abundant resource, its young labour force, since poor families cannot afford to keep their children in school.
Currently, less than 20 percent of people living in Cambodia, Lao PDR, Myanmar and Viet Nam use formal financial services, including those offered by microfinance institutions, banks and money transfer companies. Instead, the poor rely on informal services such as moneylenders and unregulated remittance providers to take out credit and move money around. The formal services that do exist are small in scope, bank-led, expensive and fragmented; they also lack appropriate businesses models for attracting and serving poor people, migrants, women and small- and medium-sized businesses.
Meanwhile, entrepreneurs and small businesses are equally disconnected from the world of regulated finance. Less than 20 percent of micro- and small-sized businesses in Cambodia, Lao PDR, Myanmar and Viet Nam use banks to finance investments, and even fewer for the financing of working capital. In fact, in Viet Nam a mere seven percent of people have borrowed money to start, operate or expand new businesses.
When poor people can access and use formal financial services like savings accounts, credit and insurance they have a much better chance of moving out of poverty and staying out. Individuals and micro-entrepreneurs are better able to build equity, manage small or irregular incomes and send or receive the remittances earned by household members working in different regions or countries.
Small - and medium-sized enterprises play a critical role in the ASEAN economy, providing employment to the region’s young and growing workforce. Their lack of financial inclusion has a profound effect on investment, employment and growth in the region. These businesses must be able to access formal financial services to invest and grow, provide regular incomes to employees and better plan and manage finances.
The SHIFT programme focuses on the financial inclusion of poor women as well as small businesses that are owned or managed by women, or which primarily employ or serve women consumers. Evidence has clearly shown that when women are able to take control of their finances, they are more likely to invest in the health and education of themselves and their family members, most importantly their daughters; such investments into ‘human capital’ then improves the overall development of the country and region. Connecting their businesses to regulated financial services also means women have more choices both as consumers and employees, a critical step toward greater economic and social equality between men and women.
Last but not least, expanding financial inclusion can help national economies to grow. For example, at least 60 to 80 percent of domestic remittances in Cambodia, Myanmar and Viet Nam are sent informally. Increased levels of business activity and transactions through a country’s formal financial system means more savings available for investment, a larger tax base and more employment opportunities. There is also growing evidence that financial inclusion creates more stable financial systems and economies, helping those economies to grow faster and in ways that are more favorable to poor people and businesses.