Retail banks can help
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The following opinion piece by WSBI-ESBG Managing Director Chris De Noose focuses on how retail and savings banks can help locally.
BRUSSELS, 23 April 2020 – The coronavirus affects everybody, rich or poor, young and old, in rich or in developing countries, but people in developing countries will be hit harder. Health structures in the “North“ – making up most of the OECD countries – are under severe stress, but they will not break. That might not be the case in all developing countries. A severe, worldwide recession will hit all countries, but the governments and central banks in the North have opened the vaults to shower the economy with cash to make sure that it does not stall. That will happen to a much lesser extent in developing countries, even if multilateral organisations and private charities are stepping in.
One of their main sources of revenue, the remittances sent by migrant workers to their families at home is drying up as economies in the West have come almost to a halt and migrant workers are the first to suffer from this situation. The World Bank predicts global remittances sent to low and middle-income countries is set to decline by about 20% this year, or around US$445 billion – greater than the GDP of oil-rich Iran, Norway or Nigeria. The ones who still have money to send back home continue to be faced with a lack of first- and last-mile infrastructure and AML and KYC requirements too cumbersome to comply with for many migrants. As the crisis unfolds before our eyes, it is more than likely that other sources of revenue in developing countries will be hit severely. Tourism is one of these. Manufacturing industries might also suffer from a rethink of the global supply chains. Local industries and particularly micro- and small-sized businesses are suffocating because these companies are unable to switch to digital and are affected most by lockdowns and curfews. People are suffering and millions of jobs will be lost.
The retail banking sector can help reinforce the link between people and communities. Since their inception, savings banks' have had as part of their mission to provide a return to society. They do this by offering a wide range of products accessible to a maximum of people – a highly efficient form of financial inclusion – and also by giving back an often-substantial part of their profits to their communities – directly or via foundations.
Beyond return on equity
For more than 200 years, retail banks from all over the world have delivered basic financial services. They are everywhere: in Africa, Asia, the Americas, and Europe. Big or small, with various legal structures, they work with people from all parts of society, who before then had simply no access to banks that catered exclusively to the needs of big companies and wealthy individuals. Savings and retail banks focus on profitability as a basic requirement for a sustainable, long-term action but have an objective that goes beyond return on equity.
Retail banking during the pandemic
In a worldwide crisis like this one, the retail banking sector fulfils its role as purveyor of basic financial services. We have reinforced our IT infrastructure to make sure our services continue to be accessible. We have taken measures to make sure businesses and households can have access to financing and have also taken steps to ease financial charges for people who are hit by the economic consequences of the crisis.
But we also launch a message to policymakers, governments and stakeholders at large in developing countries: Let's use this crisis to achieve to a good end these needed projects. Completing them ensures we finally reach intended goals long past due. Some of the postal savings banks in Africa have big distribution networks with a low threshold. For example, people in these countries go to the post office, but many appear hindered from entering a bank branch due to cultural and other barriers. Governance of most of these institutions remains extremely weak and some still do not have a banking license. They can thus not grant credits now that their economies are under unprecedented stress and citizens and businesses desperately need financing.
Bringing products the 'last mile'
In some countries agent banking is still not allowed by the national regulator, while these networks can perfectly complement the branch networks and bring products – among which the remittances I mentioned earlier – to the famous last mile: the families who depend on their sons and daughters who work abroad to help their families survive. In the same spirit, partnerships between retail banks, mobile network operators and fintechs need to be encouraged and strengthened to reach the last mile of customers. It is encouraging that central banks have started to reduce fees on mobile banking and that governments are nudging people more towards digital payments.
I am also thinking about digital identity solutions – a key requisite for KYC-rules – such as the UDAI-experience in India. This hugely successful experience should be replicated without delay in other developing countries to make sure that nobody remains excluded from the formal economy just because his or her identity cannot be certified.
We cannot go back to business as usual once the brunt of this crisis is over and we are allowed again to leave our houses. Savings and retail banks can play their role in their community. We are willing to work together with policymakers and authorities to put bold solutions in place that make it possible for all citizens to play a role in the society and to enjoy basic rights and protection. Access to basic financial services is one of these rights. The WSBI membership have been a World Bank Group UFA-partner since the beginning and have overachieved their goal. The big challenge now is to keep all the opened accounts active by strengthening digital payments and where digital is still a challenge, put financial digital education on the agenda and remind people that building up savings is useful to weather the storm.