Exploring the factors necessary to motivate further financial inclusion
Crypto adoption has made significant inroads across East, Southeast, and Central Asia, with the Asian region accounting for almost 30% of crypto inflows in 2021. This amounts to a staggering $1T in value commanded by the region – clear evidence that the continent is firmly tuned in to blockchain’s advancement. Tellingly, in Chainalysis’ 2021 report, Vietnam, India, and Pakistan claimed the top three spots in the overall adoption index, with China, Thailand, and the Philippines following closely behind.
Digital finance is, undoubtedly, gaining explosive momentum across Asia. However, a massive disparity is evident as nearly 50% of Southeast Asia remains unbanked, according to financial consultancy firm 11FS.
Upon closer examination, the highest positions of the adoption index rankings are largely dominated by countries enduring significant geopolitical and economic upheaval, bar a few exceptions. While Vietnam ranks highest on this metric, data shows that the Southeast Asian nation has the second highest unbanked population globally – with an estimated 69% of citizens excluded from financial activities. The Philippines and Indonesia are also among the largest unbanked populations, with 66% and 51% of unbanked citizens respectively.
When one cross-references these metrics, six of the world’s most unbanked nations hold a top 20 spot on the crypto adoption index.
Evidently, this correlation indicates that unbanked nations have, by and large, adopted crypto due to necessity rather than purely speculation. However,the speculative aspect of crypto also appeals to those excluded from traditional finance as a means of holding and generating wealth while local reserve currencies face rampant inflation.
Honing in on Southeast Asia
Current Barriers to Entry
The root causes of 50% of Southeast Asia remaining unbanked are multifaceted, but can be distilled into a few primary factors:
- Financial literacy
According to the World Economic Forum’s 2021 report, financial literacy in Southeast Asia is among the lowest levels globally. In Vietnam, only 24% of adults are considered financially literate. Other countries in the region observe similarly concerning rates – the Philippines (25%), Cambodia (18%), Indonesia (32%), and Thailand (27%). Education, undeniably, is a key driver necessary for growing financial inclusion in the region.
- Cash-based economies
Rural and low-income countries with high employment rates in the informal sector tend to rely on cash as a medium of exchange and thus become excluded from traditional financial services.
- Lack of access
Time is money – and this holds truer for those at the lower echelons of the economy than anyone else. For those struggling to make ends meet and surviving hand-to-mouth, taking time off to visit a bank (which likely requires travelling significant distances for those in rural areas) is simply not a feasible option.
- Gender disparities
Partly due to cultural norms in the region, women generally have less access to education and technology than men, and therefore are less able to benefit from the accessibility granted by digital finance services.
Internet Penetration As a Means of Broadening Inclusion
According to recent statistics, over 70% of Southeast Asians own mobile phones – 20% more than those who have bank accounts. With this number projected to increase as penetration grows in the region, digital finance could viably provide increased access to comprehensive financial inclusion.
Driving Further Adoption
However, internet access alone is not enough. Comprehensive steps need to be taken toward addressing the aforementioned barriers, through educational upliftment, financial literacy drives, and the development and provision of trusted service providers that motivate unbanked citizens to switch from cash-based living.