Under The Bed and Underbanked

The developing world faces many challenges from environment to health. Many of these challenges are overwhelming due to poor financial situations as the economies of these regions are not sophisticated.

The vast majority of the adult, working population in developing countries are unbanked. The situation creates complexities for the economies of these countries but also provides a mountain of opportunity that is slowly being grabbed.

It would be common sense for banks who provide services to send money to migrant's families back home to automatically allow these individuals to open bank accounts for those that are unbanked.

Under fifty percent of remittance senders and receivers have bank accounts. However, there is much that can be done by banks to get people banking so that money can be used for multiple economical purposes.

Financial instruments based on remittances could give financial institutions more tradable assets, attract more customers and enable them to use the credit history of remittance recipients to evaluate potential customers.

Senders and recipients benefit  by being able to transfer money at lower tariffs and obtain greater security. Receivers can also be encouraged to to leave their money in the bank through financial products or introduce advance payment systems making cash handling less dependable. The chance of building assets through savings and leveraging remittance funds into larger amounts via credit would also be advantageous.

By creating attractable financial products the number of youth becoming “banked” would increase. The typical bio of a migrant worker is a young man or woman who emigrates from a developing country to find opportunities that are not available in their home countries.

There is already a potential market for remittance linked financial products. Remittances are a huge source of financial revenue, the developing world received $372 billion of the $483 billion of worldwide remittance flows in 2011. Remittances sent home by migrants to developing countries are three times the size of official development.

Evidence from Inter-American Development Bank’s Multilateral Investment Fund (MIF) suggests that efforts to bank remittance recipients have a success rate of up to 30 percent. Project participants have also expressed interest in financial products such as saving accounts, business loans, life and health insurance, home mortgages, and education loans.

However, banks in the developing world must act quickly and develop their products to attract cliental as mobile banking is taking off these regions. Subscriptions to mobile networks in the developing world amount to millions and new mobile telecommunication products are taking advantage of the unbanked situation and making mobile banking seamless.

Though the banking situation in the western world has brought its economy to the cliff, ethical banking still has a huge role to play in economies let alone the developing ones.

Global Development Observation in support of a money transfer system.

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