Financial development across the Middle East has moved at an impressive pace. This is particularly true for the Gulf Cooperation Council (GCC) countries, all of which are undergoing ambitious economic diversification as part of various Vision 2030 initiatives. However, a recent policy paper from the International Monetary Fund (IMF) highlights that there is room for further progress, particularly when it comes to financial inclusion. According to the paper, reforms to increase access to finance for youth, women and SMEs are needed if the region is to see continued strong economic growth. Reforms to improve financial literacy are described as “critical”.
Small wonder. The MENA Financial Inclusion Report 2020 from Bahrain FinTech Bay (BFB) notes that the financial inclusion rate for the MENA region stands at 20 per cent, well below the global average of 76pc, with 301 million in MENA unbanked. Moreover, a new survey from Visa and Al Etihad Credit Bureau shows that 53pc of the respondents in the UAE between the ages of 16 and 24 did not believe that schools sufficiently prepare them for financial independence. In a region with one of the youngest, fastest-growing populations in the world, this matters. The GCC’s youth are key to its continued economic growth as it undergoes near unprecedented economic transformation. But not only do they lack access to the services they need to become financially independent, they feel they are not equipped with the means to develop the requisite financial literacy to take control of their own situations.
Bahrain is a case in point. The first GCC member to begin diversification efforts, the Kingdom is home to the oldest and most established banking and financial services sectors in the region. The sector is a major driver of growth – the largest contributor to non-oil GDP at 17pc. The Kingdom also boasts the region’s highest rate of high school education attainment at 85pc. And yet as data from the BFB report makes clear, even in a country with such impressive youth education rates, with such an established and increasingly sophisticated banking sector, the number of banked citizens could stand to be increased. As have governments across the region, the Bahraini government has been working continuously on improving the financial and social development of its citizens and making great progress. But for the truly seismic change that is needed to see real progress, the private sector must now step in.
As the IMF paper notes, the region’s financial development so far is in large part owing to its banking sector. It must therefore fall to these institutions to support citizens in providing much needed financial education – the lack of which is posing a significant hurdle to continued sustainable economic growth. Al Salam Bank-Bahrain (Al Salam Bank) has taken some early steps in this regard. The recent launch of its flagship mobile banking app was indicative of broader trend across the region’s banking sector – rapid digitalisation. But one innovative and unique feature to the app sets Al Salam Bank apart: the Family Accounts offering.
The new offering allows the customer to extend supplementary accounts and debit cards to their children and other household members, who will be able to view their account balance and transactions via their own login portal on the app. The primary customer will also be able to monitor the spending of the supplementary account holders. This essentially means that parents can get their children involved in managing their own finances from an early age, while closely monitoring their financial activity. While encouraging financial independence among the young, the app also encourages conversations between family members about savings and responsible spending. In other words, the feature takes banking services beyond the customer to reach the whole household.
Around the world, the face of banking is changing as the sector responds to the evolving consumer needs of the digital era. The ongoing Covid-19 pandemic has served as a further catalyst for digital transformation, as we all adapt to the ‘new normal’ of social distancing, remote working and online purchases. As the world evolves in line with this new reality, banking needs to be more inclusive and innovative to deliver results for all stakeholders. Financial education from an early age is key to ensuring that the Middle East successfully navigates this period of economic transformation. To achieve this, a paradigm shift is needed. And who is better placed to drive this change than the region’s banks?
The author is head of retail banking at Al Salam Bank-Bahrain