The economies that are underdeveloped and cannot optimise the development of their economy while disseminating economic growth to their entire population are those in which a large part of the population does not have a bank account and access to bank transactions.
According to World Bank (data.worldbank.org/indicator) data in most Latin and Central American countries respectively and in India, much of the population (with rates ranging from 50%-82%) is blocked from using banking services.
by Thanos S. Chonthrogiannis
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This means that the growth of the economy cannot be extended beyond a certain threshold, since most of the population does not have access to credit to expand its consumption and any investments.
In business, the use of cash is a significant cost, while the governments of these countries prefer that a large proportion of most of the population do not have access to bank accounts and bank transactions because of the exceptionally low incomes in the economy.
Reasons why so much of the population does not have a bank account
- In this way most of the population evades tax by living on higher incomes than the real ones, while growing the “shadow economy” that is typical of these countries-economies. If the whole population had access to a bank account the declared incomes would not be able to survive in this population and social unrest would be more frequent, putting the longevity of governments at risk. Tax evasion is favoured by the governments themselves.
- The commissions charged by the banks are high. A large proportion of their profits in these countries result from the commission charges on transactions and from the difference in lending and lending rates they offer.
- The development of most bank branches is found in urban areas where the largest and richest proportion of the population lives. Rural areas do not usually have branches, so the rural population cannot expand its production and investment in these areas through funding.
- At the same time banks are not interested in the poor part of the population because the cost of having a bank account for that part of the population increases their operating costs. The poorest part of the population in these countries consists of farmers, single-parent families, and women. As a result, the poorest population cannot be supported by the country’s government in the event of natural disasters and pandemics such as Covid-19.
What needs to be done
The governments and parliaments of these countries will have to pass bills favouring the entry of other non-banking institutions which provide banking services. This is possible, because these companies offer using a mobile phone access to a trading account and when most citizens have a mobile phone and can make purchases and payments by phone and collect money at supermarkets’ coffers.
In addition, the governments of these countries should introduce a bill that stipulates that any affected citizen either due to a natural disaster or a pandemic where restrictive measures are imposed on travel and work by means of a mobile phone message will inform citizens that they are legal to receive an allowance from the government.
Which allowance from the government to redeem will be compulsory to open a bank account in the banks, without the banks being able to disagree on this by obliging them.
This will increase competition in the banking sector without, however, solved the problem of lending to these citizens and small businesses, which in this case would create an explosive increase in expenditure leading to even higher domestic consumption.
The governments of these countries should move quickly by taking advantage of the Covid-19 pandemic so that by the end of the pandemic all citizens and small businesses have a bank account and access to credit regardless of their income.
