Jamaica Counting On its Unbanked

Friday, September 30, 2011

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ONE of Jamaica's most important financial questions is about to be answered.

Dr Maurice McNaughton, director of the Centre of Excellence of the Mona School of Business (MSB), says a study has been completed to determine the level of access that Jamaicans have to financial services in the formal banking sector. Various estimates and anecdotal claims have been made in the past, but this is the first definitive national survey to be done of this group without an account at a bank or other established financial institution, often referred to as the "Unbanked".

"This is a scientific study of the people who don't have access to, or participate in the formal banking sector," Dr. McNaughton stated. It will not only quantify the percentage of the population that is unbanked, but will also determine the nature of their financial exclusion.

Professor Evan Duggan, executive director of the Mona School of Business, underscored the importance of the study. "During October, we will disseminate the findings on this very important question at a public forum," he indicated.

"It has been well established that a key pillar to sustainable development in any country, is by expanding access to financial services," Professor Duggan said. "The primary objective of this study was to help to determine the size of the economic opportunity associated with the introduction of a comprehensive mobile financial services system."

Several institutions already provide financial services using mobile devices as delivery channels. However, Solutions for Society, a think tank in the University of the West Indies undertook to formulate a comprehensive, broad-based approach to the development of mobile commerce in Jamaica.

This approach would involve the introduction of a mobile phone-based financial services delivery system, accessible both to persons with existing bank accounts, as well as those who currently do not have easy access to the established banking network, and one that integrates with the existing interoperable retail payment system of banks, ATM's and Point-of-sale Merchants. The lower access and transaction costs associated with this delivery system is the basis on which formal financial services could be extended to those currently unbanked, on a commercially viable basis.

According to Professor Terrence Forrester, director of Solutions for Society: "The validity of this integrated approach will obviously depend on the size of the population which can benefit from such a framework." He cautioned: "If the size of the unbanked were less than 10 per cent of the population, as is the case in economies with a much higher penetration in retail banking services, then the commercial impetus and economic opportunity associated with mobile financial services would not be as compelling."

Even in the United States however, the Federal Deposit Insurance Corporation estimates that 7.7 per cent of households with at least 17 million adults were unbanked in 2009. In many poor developing countries less than two-thirds of the population have access to formal financial services, with estimates for Jamaica ranging as high as more than 40 per cent.

An important aspect of the Jamaican study was to examine the reasons why individuals are not using the formal financial services, Dr McNaughton stated. It will therefore help to determine the real barriers and actual needs of the underserved as there may be several factors playing a role in limiting access to the formal system.

The study of the unbanked was conducted by Dr Dawn Elliott, associate professor, Department of Economics at Texas Christian University in conjunction with a team of statisticians from the UWI.

Commissioned by Solutions for Society, the survey forms a key component of a study of the mobile financial services sector which will be revealed at the conference to be held in October. The project has been undertaken with support and funding from USAID/Jamaica, the Development Bank of Jamaica, and the Jamaica National Building Society Foundation.




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