Health Care Dominates Borrowing in Global South
With policyMakers in emerging market economies stepping up the focus on financial inclusion, India and China have seen the strongest growth in account ownership between 2011 and 2014. If the findings of the World Bank-Gallup Global Findex Survey 2014, which asked over 1,50,000 respondents in 143 countries how and why they access financial services, were to be plotted on a map though, there is a very clear North-South divide in terms of where people spend their borrowed money.
Unlike the developed countries of the Northern hemisphere, where mortgage dominates borrowing, in the Southern part of the world, the largest share of loans goes into education and healthcare. In India, 21 per cent of people took loans to finance health care needs, 10 per cent to finance education, 9 per cent for business, and just 4 per cent for mortgage. The sharp increase in penetration of accounts notwithstanding, the worrying aspect for India, as per the report, is that the country has among the highest rates of dormant accounts in the world.
The Global Findex database reveals that between 2011 and 2014, 700 million adults worldwide became account holders while the number of adults without an account – or those still unbanked or out of the banking fold – dropped by 20 per cent to 2 billion. Globally, 62 per cent of adults have an account, up from 51 per cent in 2011, according to the Findex Database 2014 on ‘Measuring Financial Inclusion around the World’. In India, bank account penetration increased from 35 per cent to 53 per cent while in China, bank account penetration increased from 64 per cent to 79 per cent. In terms of absolute numbers, this growth translated into 180 million adults in China and 175 million in India becoming account holders – with the two countries together accounting for about half the 700 million new account holders globally. The challenge for policy makers, though, is the fact that opening of accounts does not necessarily mean that they are used. Globally, 15 per cent of adults with an account at a financial institution – representing about 460 million people – reported making no deposit or withdrawal in the past 12 months and therefore have what can be considered a dormant account. This means not only that their account had no cash deposits or withdrawals, but also that it had no electronic wage deposits and no electronic payments or purchases. The dormancy rate in South Asia is especially high at 42 per cent; the average across all other developing regions is less than 20 per cent. India, with a dormancy rate of 43 per cent, accounts for about 195 million of the 460 million adults with a dormant account around the world. In high-income OECD economies the dormancy rate is 5 per cent.
“We need to bring more of the hitherto excluded to participate in the financial system. The Prime Minister’s Jan-Dhan Yojana has created accounts for much of the excluded population. The government has taken the next step of attaching a variety of financial services such as accident and life insurance to these accounts, and sending direct benefits such as scholarships, pensions, and subsidies to these accounts … Easy payments, access to cash-in and cash-out facilities, and widespread availability of safe savings instruments have to be our next objectives in the financial inclusion of households,” RBI Governor Raghuram Rajan had stated in a September 18 address at the Fourth CK Prahalad Memorial Lecture.
- Health Care