A Policy
Research Working Paper issued by the World Bank has found that saving-linked
tax incentives catalyze financial inclusion in different countries.
“The likelihood of owning a bank account is higher in countries where policy
makers encourage savings through tax incentive schemes,” says the Paper captioned
‘The Foundations of Financial Inclusion-Understanding Ownership and Use of
Formal Accounts’.
Defining financial inclusion as formal opening of formal accounts, the Paper
used the data for 123 countries and over 124,000 individuals to understand
what factors are correlated with the use of formal accounts and what policies
are especially effective among those most likely to be excluded: the poor and
rural residents.
The paper says: “Financial inclusion can bring many welfare benefits to individuals.
Yet we know very little about the factors underpinning financial inclusion
across individuals and countries.”
It adds: “We find that greater financial inclusion is associated with a better
enabling environment to access financial services, such as lower banking costs,
greater proximity to branches, and fewer documentation requirements to open
an account. Policies targeted to promote inclusion—such as government requirements
to offer basic or low-fee accounts, exempting small or rural depositors from
onerous documentation requirements, and the use of bank accounts for government
payments—are especially effective among rural residents and the poor.”
The Paper, which was released earlier this month, notes that the probability
of using the account three or more times a month is higher in countries where
the government makes payments through bank accounts as well as in countries
where savings schemes and tax incentive programs to promote savings are in
place.
According to authors of the study, “Use of bank accounts for government payments
and tax incentive schemes to promote savings are also associated with a lower
likelihood to report ‘not enough money’ as a barrier by the unbanked. If we
focus only on financially excluded individuals who report not having enough
money as their only barrier, we observe that the presence of basic or low-fee
accounts, KYC exemptions, correspondent banking, consumer protection, and accounts
to receive G2P payments lower the likelihood that these individuals will cite
lack of funds as a barrier.”
This suggests that government policies to promote inclusion can increase the
likelihood that individuals perceive that financial services are within their
reach, the paper concludes.
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