Financial inclusion pays good dividends

The UAE is the perfect example in the Mena region of how vision and execution can create success. This was best displayed when the nation climbed the World Bank ranking for financial inclusion to a level where it is close behind most Western countries, in a matter of just three years.
First, the numbers. According to the World Bank's Global Financial Inclusion Database, or Findex, 60 per cent of the UAE population over 15 years of age had a bank account in 2011. This climbed to 84 per cent by 2014, in the next edition of the Global Findex.
This is significantly higher than the 73 per cent of population with a bank account as an average of the 'High Income non-OECD' group, under which the UAE is classified. And it is close behind the 94 per cent inclusivity of the 'High Income OECD' group. It compares favourably against the world average of 61.5 per cent of people over 15 with a bank account. Against its large economy peers in the Mena region, the UAE's 84 per cent compares against Egypt's 14 per cent and Saudi Arabia's 70 per cent.
It would help to understand how the UAE made this transformation with such success.
Financial inclusion begins with looking at who is excluded. To be effective, inclusion requires a case-specific, often local approach.
Take the example of the Wages Protection System (WPS), an electronic salary transfer system developed by the Central Bank of UAE to guarantee full and timely payment of contracted salaries, to blue-collar workers in particular. A beneficial effect of this initiative was to bring a large unbanked demographic, hitherto excluded from the financial system, into the mainstream of electronic financial transactions.
This kind of case-specific approach is two-pronged: it combines education at the user level with solutions that have zero negative effect on the bottom lines of adopters. It plays to strengths within the system, while addressing specific pain points in a cost-effective manner.
Cost-effective for acceptors
In the UAE, it does not make economic sense for financial institutions to enable small transactions when they have to pay a premium to large international processing networks for each payment. Large segments of the population armed with WPS cards would benefit from a low-cost domestic scheme or a local payment network, which, as long as it is ubiquitous in terms of acceptance, will enable financial inclusion at all socio-economic levels.
A local scheme, which works purely on the WPS card, would mean that workers would get paid on it, and they would have the ability to use it at merchant establishments. Inclusion here means that they don't need to carry cash to the supermarket; and they reap all the benefits of using a payment card.
Once the solution is in place, educating users to bring them into the system is the next step. Some unbanked people, like most of our parents a couple of decades ago, do not want a credit or a debit card because they aren't sure it's a good thing.
Today, 20 years on, that mindset has flipped 180 degrees. Now, you won't go anywhere without a credit or debit card because it is so convenient. Those who remain unbanked even today are the people who are predominantly cash users.
Once upon a time, it was not unheard of for migrant workers to take their salary in cash and put it under a mattress. In that sort of system, there is a high possibility of leakage, of someone else lifting my mattress. Years ago, when companies in the UAE started using ATMs to pay salaries, they thought it would instill into workers a sense of confidence about being paid in full and on time. At first, however, the opposite was true. For workers accustomed to a human being putting cash into their hands, there was fear of the big bad machine. It added another layer between the employer and employee - one that cannot be petitioned or questioned in case of any disparities or variances. Common fears included: What if the machine takes away my money? Or, what if the machine runs out of money before I get paid?
In one instance, we were told that on payment day, workers would gather at the ATM at 7am, creating serpentine queues, with the belief that if anyone showed up late, they would get less money, like the dregs from a barrel.
The education solution in this case was relatively simple. The accountants and managers brought in transparent Plexiglas cabins and displayed the entire payroll for the month - about Dh7.5 million in cash - to show workers that the total amount was going into the ATM. They did this two or three times until confidence was instilled. In six months, the ATM queues on salary day had shrunk to three or four people.
Similarly, the concept of using WPS cards to make payments at grocery stores involves a process of building confidence that the store is not going to charge Dh7 for a Dh5 item because you paid using plastic.
For most of us, using plastic to make payments may be a simple and automatic act. For a new user recently included in the mainstream financial system, however, it takes a leap of faith to abandon the belief that just because no cash is changing hands in a system not fully understood, maybe someone will skim some of it. Or, it takes effective education.
The writer is the chief executive officer of Network International. Views expressed by him are his own and do not reflect the newspaper's policy.