What is the bankable frontier?
This weblog will trace developments, conceptual and practical, in the bankable frontier.
So what is the bankable frontier? As the diagram below suggests, it is the level at which the provision of formal financial services to individuals and/or households ends. This level is usually measured in income space i.e. the frontier is the lowest level of income at which people are typically serviced by formal financial institutions such as banks. But it can be measured in other space terms too, which may not correlate with income—including geography (rural/urban, even race in some markets).
The blog will focus especially on developing countries, where the frontier is typically at low levels. But it will not exclude developed countries where the issue of pushing the frontier continues to attract much research and debate, even at high levels of access to formal financial services.
There are several reasons why the focus on the bankable frontier is warranted.
- Because tracking this frontier is a key indicator of the broadening of access to formal finance in an economy; and this has implications for overall economic growth as well as poverty alleviation; and.
- Because lots of innovation is happening, at an accelerating pace around the world in this area. The extension of the frontier requires sustainable reduction in the cost of offering financial services.
Why the focus on ‘bankable’, you may ask? This does not imply that having a relationship with a bank is in itself the ultimate objective. It is a clear proximate objective though. More so, I use ‘banked’ as a proxy for inclusion in the formal financial sector, which goes well beyond banking alone to other types of financial service. The focus on the formal aspect is important though: not that informal financial services, such as informal rotating savings and credit associations (ROSCAs), are unimportant. They are clearly important in the lives of many poor people, especially in developing countries where the formal sector is often debilitated. However, informal financial services carry crippling disadvantages as well in the context of the modern growing economy: they usually don’t scale; can be exploitative (as formal ones can be) and may be very risky in fact. It is around the frontier bankable group shown below that formal and informal services are often complementary.
