The ideology of inclusion is indeed increasingly inspiring and influencing the global financial sector agenda—the literature is becoming progressively replete with country, regional and worldwide studies investigating the status quo, extent, determinants and policy direction.  The concept connotes access to useful and affordable financial products and services delivered in a responsible and sustainable manner.  For instance, access to a basic bank account—a standard measure of inclusion—enhances savings, empowerment, as well as consumption and productive investment of entrepreneurs.  Financially included individuals and firms are promised a safe place for future savings, which may foster financial stability since bank deposits become the most secure funding base in times of uncertainty and crisis, especially in the case of smaller banks and otherwise those with limited access to financial markets.  Financial services make it easier to manage financial emergencies—such as job losses or crop failure—that can push families into destitution.  The macro-economic benefits are equally compelling—inclusion triggers economic development and thereby contributes to poverty reductions via, among others, investments in education and entrepreneurship. 

Financial exclusion then becomes problematic when it is involuntary or forced. Exclusion warrants policy action when there are individuals whose marginal benefit from using financial services exceeds the marginal costs, but who are excluded by barriers such as high account fees, large distances, and lack of suitable products—that result from market failures.  And the extent and instances of exclusion, globally, has indeed been concerning.  According to the latest available global trends, in 2017, around 1.7 billion people worldwide (approximately ¼ of world population) remained unbanked i.e. without an account at a financial institution or through a mobile money provider; virtually all of these in developing economies—nearly half in just seven: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.  Gaps persist as well; e.g. fifty-six percent of all unbanked adults are women and poorer households—those who have no easy access to banks in their regions or who have developed a deep mistrust of the financial system.  

Remarkably, conspicuously missing from the World Bank’s Global Findex database and the financial inclusion literature so far are a host of economies located to the East and North-East of Australia—the Pacific Island Countries (PICs)—not only are these among the world’s most remote and geographically-dispersed but also small in size, with limited natural resources, narrow-based economies, large distances to major markets, and vulnerable to exogenous shocks—a sure recipe for growth, development and poverty and inequality challenges and high degree of volatility.  These economies are also among the most vulnerable in the world to the effects of climate change and natural disasters—at least eight PICs are among the world’s 20 countries with the highest average annual disaster losses scaled by gross domestic product.  Add to this the relatively underdeveloped, bank-centric, financial systems and the state of affairs becomes rapidly somber.

This study attempts to fill this gnawing gap in the literature by bringing to light the case of one such PIC—Vanuatu.  The data source is a 2016 field survey, spanning 991 households, based on the Findex framework and methodology, including the survey instrument.  The Demand Side Survey (DSS) data is the first of its kind for the country, giving policy-makers valuable baseline information of consumers’ access to and use of formal financial services, and laying the groundwork for future research into how these services fit into and transform the lives of everyday Ni-Vanuatu.

Key findings and implications of the study are as follows:

Men are less likely to have general savings and formal credit compared to women.  However men are more likely to have formal accounts.  As well, education and income are positively related to inclusion and the rural population is largely unbanked

Barriers include lack of identification, distance to access points, preference for cash, the perceived cost of setting up formal accounts, lack of knowledge in document handling, lack of trust in banking systems, and someone else in the family owning a bank account

While the results are not too different from the rest of the region and compared to similar economies elsewhere, there is vast room for continuing to drive the financial inclusion agenda

An individual’s decision to remain unbanked can have long-lasting effects, since having a bank account can facilitate asset building and wealth creation that may allow for consumption smoothing at retirement or when faced with shocks

The relatively low reliance on formal credit can in the long run lead to slower economic growth, as borrowing prospects for individuals would be reduced. It can also hamper financial stability, since all credits granted outside the formal system are beyond the scope of banking regulation. Growth and financial stability provide incentives for authorities to encourage the use of formal credit in Vanuatu.


Alison Bainauri and Arold Bill, Reserve Bank of Vanuatu, Tracey West, Parmendra Sharma, Nirodha Jayawardena and Tingxi Zhang, Griffith University

This  paper was presented at the December 2018 South Pacific Central Banks—Griffith University inaugural research conference in Suva.  Key stakeholders attending the conference included Reserve Banks of Australia and New Zealand, ADB, World Bank, IMF/PFTAC and DFAT.  The views and opinions expressed in this study are those of the authors and do not reflect those of the Reserve Bank of Vanuatu or its Board. 

Please click here to read the full working paper, “Inclusion inspires global financial agenda but how does it fare in the small Pacific Island Countries? The case of Vanuatu”.