How Illiteracy Affects the Financial Inclusion of The Unbanked

How Illiteracy Affects the Financial Inclusion of The Unbanked

Financial inclusion has become, over the past years, a very important subject, being debated on global policymakers’ agendas, as governments all over the world recognise how financial exclusion increases inequality and leads to slower growth and development. Research has demonstrated that by developing and promoting proper financial inclusion, countries are able to improve domestic savings, stimulate pro-poor growth and poverty alleviation, bolster household, domestic and financial sector resilience, and foster entrepreneurship and business activity. Just look at the numbers: universal financial inclusion will bring 2.5 billion people into the formal financial system.

If for many years the phrase “financial inclusion” just meant  the expansion of credit to the unbanked, it is no longer the case. Today, policymakers recognise the need to broaden access to not just credit, but remunerative savings, payments and remittances and easy-to-understand insurances.

Unfortunately in order to achieve this goal, which will benefit all humanity, some obstacles need to be surpassed. An important one is literacy, which is often a hidden problem to the advancement of financial inclusion. Great systems , that work very well theoretically,  don’t adapt to the down to earth reality of people which are unable to learn how to use them, simply because they cannot read, or understand their receipts.

In 2014, the CGAP conducted a research, with Pakistani  beneficiaries  of Government to person (G2P) payments to better understand the constraints of linking G2P payments to financial inclusion. The CGAP is a global partnership of 34 leading organizations that seek to advance financial inclusion. Housed at the world bank, the CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable approaches at scale.

The research they conducted in 2014, found that illiteracy is one of the main problems that needs to be surpassed and pinpointed what were exactly the problems that needed to be tackled : 

Skill in Reading and Writing – Most women in Pakistan were unable to write their own name. Plus, they couldn’t understand symbols, icons, illustrations, and instructions. The outcome of this fact, was that women had an hard time understanding any kind of instructions.

Understanding of Numbers  Most participants of the research could read English numbers (e.g., 1, 2, 3, 4, etc.) and knew what they represented, but were not able to interact correctly with systems using numbers.

Confusion concerning Direction  – People speaking languages such  Urdu, Punjabi, or Saraiki, were used to look at things from right to left. This provokes many problems to the financial inclusion of people, using a English system of numbers , such as confusion when enter in their PIN code (they would begin from the right).

Understanding of Currency – The study found out that people might had difficulties recognising numbers and their values in different contexts, and what is the logic behind currencies.

Parsing –  The study concluded that people were not able to understand the conceptualisations inherent to a receipt. To understand a receipt you have to pick out which characters are relevant and recognize what they represent. For example, women could not recognize an amount on a receipt if it was close to other extraneous text or numbers of the same size.

The study also researched solutions to solve some of these problems, such as using icons or providing verbal instructions to people to facilitate their interactions with payment systems. Unfortunately both systems failed, because people couldn’t understand icons, and struggled with making the translation from verbal instruction to manual action. Abstractions such as “top, right” or “the square” were confusing. 

Can Blockchain Powered Financial Inclusion Help With the Issues of Illiteracy?

Even though it seems counterintuitive at a first, innovative technological systems, such as blockchain technology have been adopted to the field of financial inclusion. Pani Baruri, from Cognizant, researched various types of projects using blockchain to power financial inclusion. 

Image source Cognizant

These innovative projects pose some challenges to the issue of literacy, since they seen to imply a complex degree of literacy from the population.  Fortunately there are some other innovative solutions trying to tackle some of the problems outlined previously. One rare case is Humaniq.

Founded in 2016 by Alex Fork, Humaniq  aims to become a 4^th generation mobile banking system, that uses the Ethereum blockchain to tackle the phenomenon of financial exclusion. The project is designed to help those without any formal identification documents to gain access to the banking ecosystem. Plus humaniq has developed some solution to tackle the problem of iliteracy. In an interview to Intelligenthq, Alex Fork told us how during some tests, he came across the problem of illiteracy:

“We found that in the slums, where we were, about 20% of the population can not read. It is a challenge, creating an interface, which depicts visually how much money you have. That is, that does not require numeracy. This is the main difference from any payment tools based on other cryptocurrencies. Rather than relying on formal documentation for identity verification, the Humaniq project relies on biometric authentication for identity verification and signup. Each user of the Humaniq mobile bank system will be assigned an ID on the blockchain that uniquely identifies the user. but on bio-identification of the user’s face. Presently, the app created uses no language, but only numbers.”

Humaniq’s solution is promising, and it will be interesting to see how it will evolve. It is quite exciting to see how a radical technology such as blockchain can be used to include the more vulnerable sectors and impoverished sectors of the global population such as the unbanked. But in order for these experiments to truly deliver results, it will be necessary to engage in concerted efforts to promote the literacy of the adult populations.