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Unbanked: 600 Million Adults in East Asia and the Pacific Remain Outside the Formal Financial System

  • New database on financial inclusion provides comparable data for 148 economies across the world on how adults manage their daily finances and plan for the future
  • 55 percent of adults in East Asia and the Pacific have a formal account
  • Account penetration in East Asia and the Pacific is higher than in any other developing region

May 17, 2012 – For Chasudin, a clam harvester in Indonesia, it is impossible to save anything. What he earns today is spent in meeting day-to-day household expenditures. There are times when he doesn't have work and in those harder times he resorts to borrowing from here and there, including a loan shark. We know that he is not alone, but exactly how many others share his situation across East Asian and Pacific Economies? How are people saving, borrowing, making payments and managing risk?

IIn the past, the view of financial inclusion in East Asia and Pacific has been incomplete, and the details unsatisfying. A patchwork of data from diverse and often incompatible household and central bank surveys was the only information available with which to construct a regional picture.

With the release of the Global Financial Inclusion Indicators (Global Findex) there is now a comprehensive, individual-level, and publicly-available database that allows for comparisons across 148 economies of how adults around the world manage their daily finances and plan for the future. The Global Findex database also identifies barriers to financial inclusion, such as cost, travel time, distance, amount of paper work, and income inequality.

Who are the unbanked?

The database covers nine economies in the East Asia and Pacific region and, with over 40 indicators, each sliceable by gender, age, education, income, and rural or urban residence, one can easily get lost in the nuance. But let’s start with the broad strokes: according to the data, 55 percent of adults in the region have a formal account, ranging from 4 percent in Cambodia to over 60 percent in China, Malaysia, Mongolia and Thailand. In China, 25 percent of adults report having an account at a post office. Account penetration in the region is higher than any other region (excluding high-income economies).

Why do 45 percent of adults–more than 600 million people–in East Asia and Pacific remain outside the formal financial system? 64 percent of the unbanked say that they do not have enough money to use a formal account, 24 percent say they don’t need one because someone in their family already has one, and 20 percent say that banks are too far away. Compared to other regions, unbanked adults in East Asia and Pacific were particularly likely to cite these last two reasons, and particularly unlikely to cite trust in banks as a barrier to account ownership.

An increasingly common alternative to formal accounts in some parts of the world is mobile money. The use of mobile phones to pay bills, or to send or receive money is reported by only 2 percent of adults across this region, but the value rises to 8 percent in Mongolia and 15 percent in the Philippines. In the Philippines, more than half of these mobile money users are otherwise unbanked.

Account penetration around the world

East Asia and Pacific leads in financial inclusion among the youth

The youth in the region are better integrated into the formal financial system than in any other region. Compared to youth in other regions, those aged 15 to 24 in East Asian and Pacific countries have the highest account penetration both in absolute terms and as compared to those aged 25-64. Among all developing economies, youth are 32 percent less likely that those ages 25-64 to have a formal account, but in this region youth are only 14 percent less likely to have an account.  The youth gap is essentially nonexistent in China and Vietnam.

Account penetration by age group

Savings and credit

The Global Findex database also sheds light on the diverse savings behavior across the region. According to the data, 40 percent of adults in East Asia and Pacific report having saved or set aside money in the past 12 months.  Of these savers, 72 percent (or 28 percent of all adults) saved at a formal financial institution. These rates of general and formal savings behavior again place East Asia and Pacific at the top of the regional list.

Formal and informal saving

Interestingly, there is enormous variation across economies in the degree to which account holders use their accounts to save. In Vietnam, for example, 33 percent of account holders report having saved formally in the past year compared to 75 percent in Indonesia.

When it comes to credit, 9 percent of adults in the region report having originated a new loan from a formal financial institution in the past 12 months. This value is about 20 percent in Cambodia, Lao PDR, Mongolia, and Thailand, perhaps owing to the relatively broad reach of rural formal lending models in those countries.

The Global Findex database will facilitate a deeper and more nuanced understanding of the financial behavior of adults in East Asia and Pacific, and around the world. With the release of future rounds, the data can be used to evaluate the expansion of financial inclusion reforms, as well as the impacts of other country-level financial inclusion reforms.

On April 19th, the World Bank released the first round of the Global Findex database, based on more than 150,000 interviews carried out by Gallup Inc. in association with its 2011 World Poll. The complete database, report, and survey are available at www.worldbank.org/globalfindex.




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