There is no doubt that the COVID-19 crisis will have a profound impact on the whole world, and for hundreds of millions of vulnerable people, especially low-income individuals, small businesses and workers in developing countries, the impact could be very severe. UNEP FI Head, Eric Usher, in the second of his blogs on how UNEP FI members are responding to the COVID-19 crisis, considers the role of responsible banks in supporting these neglected communities. And how the banking sector can ensure financial inclusion is not forgotten as economies recover from the crisis and build back better.
According to the World Bank, financial inclusion ensures that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. The last decade has seen significant improvements. World Bank and Findex data reports that a global average of 51% of adults had bank accounts in 2011; compared to 69% in 2017. But this varies by country, with 94% in high-income countries, 65% in medium income countries and only 35% in low income countries. Close to one-third of adults – 1.7 billion – are still unbanked with women particularly underserved in developing countries. Financial inclusion also has a role in achieving several of the 17 Sustainable Development Goals and is an important consideration for banks as they implement the UN Principles for Responsible Banking. The banking sector, often in collaboration with other stakeholders such as governments and NGOs, will play a key part both in the recovery of the economy after the crisis, and in reducing poverty and increasing future financial participation.
In emerging markets, micro-businesses, SMEs and informal jobs are the engine of the economy. Under the lockdown measures around the globe, if measures are not taken to support these sectors and the individuals working in them, their businesses and incomes will be heavily hit. If this section of the population is not supported in the short-term, it is highly likely that the health crisis will worsen as, unable to survive through respecting the lockdown measures, vulnerable workers will start seeking income again. Responsible banks have already acted to mitigate this problem, for example, Latin America’s Development Bank, CAF has set up a credit line to cope with the outbreak, providing funds to each member country to support the local health systems and Barclays in the UK is donating £100m to charities working to support vulnerable people impacted by COVID-19, and to alleviate the associated social and economic hardship caused by the crisis.
Responsible banks can support vulnerable individuals and small entrepreneurs by clarifying how the payment of existing loans will function at this time and how access to new credit in the future will be possible. Other services, such as insurance and receivables financing, have also proved essential for supporting these small businesses. Bancolombia, has introduced a special commercial credit line for SMEs, companies and corporate clients so that they don’t need to make redundancies; Banco Hipotecario in El Salvador, has deferred payments of existing loans up to six months; Standard Bank in South Africa, has given three-month installment relief on home loans, vehicle and asset finance, credit cards and short term loans for customers earning R7,500 or less. And Bankia in Spain is offering bridge financing and long-term financing solutions to businesses that need support to help pay off their long-term borrowing. They have extended their moratorium on interest and mortgage repayments to six months.
In recent years, digital solutions have helped increase financial inclusion and these and new digital strategies will help banks support their vulnerable customers during the build back period – digital financial services, digital transfers and online payments can provide quick, convenient and affordable access to funds. For example, Beneficial State Bank in the USA has waived many transaction and processing fees for customers facing financial difficulties and increased limits on mobile deposits to facilitate online transactions, and Bank of Ireland has put in place a fully online application process for mortgage payment breaks so that customers may apply quickly and easily for a break and has launched a new service to allow self-isolating customers access to cash without having to leave home.
Over the next few months and well into the COVID-19 recovery, new innovations to support the vulnerable public will be of great value. Financial institutions can use their powerful voice and extensive communication channels to help small business owners manage their businesses during this difficult time. Educational videos, tools and other services to help them run their own businesses and financial lives will be a critical solution. Partnering with other stakeholders is also an alternative solution to support customers beyond just focusing on the financial services, whilst also accelerating the recovery. For example, banks can work with their large corporate clients and structure Supply Chain Finance programs (commonly known as supplier finance programs) that offer financial solutions to their small business suppliers across the value chain. They offer access to finance for small businesses at competitive rates by taking into account the risk of their corporate buyers.
As we start to rebuild our economies, responsible banks will analyse their recent data and ask themselves the following questions: What gaps in the economy have affected SMEs most? What areas in different cities are most vulnerable in terms of different crises? Were gender and racial gaps intensified during this crisis? The answers to these kinds of questions affect financial inclusion. Banks which consider people at the base of the pyramid will ensure that the financial sector has a positive impact on society and the economy.
This crisis is teaching the world to look differently at the relationship between the global economy’s stakeholders and how they need to work together closely to be effective. A coordinated response from governments, regulators, the private sector, and civil society is important now, and will continue to be as we build back more resilient societies and economies. COVID-19 has critically challenged communities globally, and it won’t be the last one to do so as the world continues to face environmental and social challenges which exacerbate each other. We should not waste this opportunity to decide what kind of recovery we want for our society and planet, and the role responsible banking plays.
In Eric Usher’s first blog on how the finance industry is responding to the COVID-19 crisis, he highlights the initial measures taken by some of UNEP FI member banks to mitigate the impact of the virus.
Read about more of the measures that UNEP FI banks have been taking in response to the pandemic on our COVID-19 page.
COVID-19 updates from UN Environment Programme
The transmission of diseases, like the Novel Coronavirus COVID-19, between animals and humans (zoonoses) threatens economic development, animal and human well-being, and ecosystem integrity. The United Nations Environment Programme supports global efforts to protect biodiversity, to put an end to the illegal trade in wildlife, to safeguard the handling of chemicals and waste and to promote economic recovery plans that take nature and the climate emergency into account. Read the latest news and science from UN Environment Programme on these areas.
Sources: World Bank, Findex Data(https://globalfindex.worldbank.org/) and Mais Sha’ban, Claudia Giradone & Anna Sarkisyan (2020) Cross-country variation in financial inclusion: a global perspective”, The European Journal of Finance.