Asia Has a Financial Inclusion Problem, and It’s Especially Bad for Women

Financial Inclusion

Hong Kong-based seasoned banker and investor Jennifer Cao talks to Jumpstart about the financial inclusion of women in Asia, and how supporting women in business can be part of the answer.

The fintech space is thriving in Asia, from wealth management and trade financing, to buy-now-pay-later and digital payments, which all owe their growth to limited and ineffective traditional banking systems in the region. Even as fintechs continue trying to fill financing gaps, the truth is that the burden of financial exclusion falls disproportionately on marginalized groups. One of these is women.

Consumer adoption of fintech has grown 2-3X in the APAC region between 2018 and 2020, according to EY. Although China and India are leading markets, Hong Kong, Singapore and South Korea are not far behind. Fintech options for businesses are opening up in the region as well.

Further, while over half of the world’s 80 fintech unicorns are in the Americas, the rest are almost evenly split between the EMEA and APAC regions. Of the total funding amount raised by fintech startups over the years, which reached US$121.7 billion in February 2020, Asian firms emerged as the leaders of the pack, raising over 40% of this amount.

One of the reasons behind this boom is that Asia is an underserved market. Emerging Southeast Asian countries also have some of the most underbanked populations in the region. As of 2019, over 70% of adults in Southeast Asia are either underbanked or unbanked.

The problem is not limited to Southeast Asia alone. Per a 2017 report, both East APAC and South Asia had high unbanked populations. Overall, just about 27% adults in Asia had a bank account, and only 33% of firms had access to a loan or line of credit as of 2018.

Asia is grappling with the financial exclusion of millions, but women pay a higher price.

Financial inclusion, or the lack of it, is not a homogenous trend in the APAC region. Asia’s unbanked population is largely found in China, India, Indonesia, and Bangladesh. Of these, women account for 60% of the financially excluded in India and China, and 65% in Bangladesh, versus a global average of 56%.

The problem starts with how traditional banks segment their customers, Jennifer Cao explains. Cao is a Hong Kong-based banker with over 25 years of financial services experience, about half of which she spent in Asia. She explains that in traditional personal banking, customers are segmented into different buckets based on demographic factors including their wealth.

“If you are a stay at home mom who wants to start your own business, you don’t really belong to any of these traditional segments,” she says. “What banks need is to attract assets and to lend money. But banks cannot do the credit risk analysis of someone they don’t have a relationship with. So the old traditional model cannot reach these people, and the cost-benefit for a traditional model just doesn’t incentivize big banks to go and serve this below-mass segment.”

Jennifer Cao

Even in the startup space, Cao notes, the focus is often on fintechs that can achieve an exponential growth trajectory. Building more inclusive solutions may not feature high on the list of priorities in the race to capture market share.

It’s not that founders don’t want to focus on marginalized groups such as women, but that they haven’t quite figured out how to make inclusivity profitable and ‘sexy’ enough to attract investors and partners.

This can be problematic in several ways. Financial inclusion is conducive to improving livelihoods, reducing poverty and inequality, promoting entrepreneurship, and driving inclusive economic development, a working paper by the International Monetary Fund notes. In the APAC region, where informal finance is extensively available (leading to predatory interest rates and even threat to one’s person and property), this has further significance.

In other words, being excluded from access to affordable financial services means that women become heavily dependent on their financial providers, face inequalities in different spheres of their lives, and are not counted as productive members of society. The lack of access to savings, credit, and insurance solutions impedes women’s “financial resilience and stability.”

Financial illiteracy is problematic too.

Being financially excluded is not only about the lack of availability of financial products and services. It also means not knowing how to plan one’s own finances, or how to tap into financial products and services where they are available.

For instance, in Southeast Asia, while the average income for women has doubled since the late 1990s, their financial knowledge and decision-making remains more or less unchanged. So even if women have money in hand, they may not be able to leverage ways to make that money productive. Cao cites her own observations in this respect.

“Even the high earners in the international women’s community in Hong Kong don’t have the necessary financial knowledge to manage their own investments, or to have financial planning for retirement  or have proper protection. Many of them default to their partners, even though they are also earners,” she says.

Cao adds that it’s important for financial literacy to find a place into education systems. Financial planning and security is a foundational aspect of living and thriving in these times, she explains, so even people from non-financial backgrounds need to have a grasp on the basics.

“You need to know where money comes from, where does money go, how does money grow, what are the emotional attachments to money, and how do I have a healthy relationship with money. This needs to be in the education system. My high school- and college-aged kids, who are learning about science, literature and history, should also learn about this as well,” she says.

Putting expertise and passion to good use.

As someone who supports the mission to financially empower women, one of her more recent undertakings includes participating in a pre-seed female investor-driven round in Singapore-based women-focused neobank Lucy.

Lucy’s mission is to “provide financial services to as many women as possible,” the company says on its website. The app, which is to be launched this year in Singapore, offers free accounts that come with debit cards, no-interest salary advances, loan management services, and flexible credit, among other features. The bank also does not take fees from its account-holders.

On the question of whether there’s a business opportunity in a solution like Lucy, Cao notes that the sheer number of women who need access to financial services for a variety of reasons – financing, payments, forex, financial management – means that the opportunity is very much present. The approach however, needs to be carefully managed in order to balance the problem-solution aspect with the company’s mission.

“If Lucy creates a beautiful app and charges a 30% fee, what’s the point? But then you have VCs saying that if you don’t charge 30%, you’re not going to be profitable enough, so the viable way is to grow in numbers,” Cao says.

“[That’s why] we need everybody to be promoting something like that, a company that has a mission. It’s not profit-driven only. Businesses that do good should be the way to go for the future,” she adds.

Moreover, she adds that the money trail is where the real talk is. Women-driven businesses need backing. Cao firmly believes that one way to balance the scales is to direct capital to women-run businesses, women founders, women venture capital partners, and women business leaders.

Lucy’s own website quotes several media sources to point out that women founders secure barely 3% of the funding that men receive, despite the fact that gender parity in entrepreneurship could give the global economy a $5 trillion boost, and that women founders are able to generate twice the average returns per dollar of funding.

But beyond the numbers, it’s truly about the community. Historical movements take place among congregations of people with shared beliefs. And while it can be easy to co-opt these movements (think poorly-thought-out Women’s Day campaigns), the true driving force of change is ultimately a community that supports each other.

As Cao says, “Businesses need to be on the right side of history and society.” In the brewing commercial reckoning coming for business leaders everywhere, companies need to become inclusive for all groups of people, including women – and in a society hinged on economic activity, this goes for finance more than anything.


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