Tarek Amer and Richard Thaler, the future of financial inclusion

CAIRO - 3 March 2018: Last April, the Central Bank of Egypt launched an initiative, which is possibly the most important initiative in the history of the establishment. Namely the initiative of financial inclusion. Financial inclusion is defined as the pursuit of banking and financial service-providers to spread their services in the widest range possible; in other words, the inclusion of as many citizens as possible into the banking system so they can use the various banking and financial services that these establishments provide.

It is noteworthy that this initiative was not created out of nothing, but has actually been one of the important paradigms of the economic reform sought and pursued by the Egyptian state. In 2014 only 14 percent of Egyptians owned bank accounts, which creates a deficiency that hinders the economic reform process. There is a strong correlation between economic reform on one hand, and how such reform is represented in the banking and financial sectors on the other. The more represented in the sectors of banking and finance economic reform is, the more widespread its effects will be and the more those effects can be seen and felt by the citizens. The launch of this initiative is, thus, evidence of the commitment of Egyptian policy makers, be it economic, financial or monetary, to the creation of a real step towards economic reform which will not just be measured by indicators as it has been in the past, but will be a comprehensive and realistic reform.

Tarek Amer, governor of the Egyptian Central Bank , has managed to pass one of the most difficult stages of economic reform, and achieved remarkable success by coordinating with political leadership, thus earning the award and title of “best governor of a central bank in the region”. During his term, the number of Egyptians who own bank accounts has remarkably increased from 14 percent to 32 percent in 2017 for instance. However, there is yet much more to do in order to further improve this percentage, especially considering a significant portion of these accounts are considered underbanked, or in other words, accounts that do not make use of all the banking services available.

Richard Thaler was awarded the Nobel Memorial Prize in Economics in 2017, which helped make his economic ideas world recognised. He is an American economist known as the father of behavioral economics. To summarize Thaler’s basic hypothesis about this branch of economics, it gives attention to the individual, their interests, tastes, psychological motives, desires, social background, and the influence that all this can play on their economic and financial behaviors and decisions. At this point it is important to say that the field of financial inclusion is one of the fields that has profited the most from the success of behavioral economics.

If we take into account the nature of the Egyptian people, and the grip that superficial religiosity and inherited traditions has over them, along with an illiteracy rate that reaches up to 30 percent, as well as the varying approaches towards banking and financial services according to the economic nature of geographical regions (for example, the economic approaches in touristic governorates is different from that of rural ones, and both are different from governorates where service occupations are predominant). If we take all this into account, we can see that there is a dire need for knowledge of the Egyptian citizens’ financial and economic mind, and of how to design financial inclusion campaigns and consequently, the services related to such inclusion according to geography, demography, predominant economic style, literacy rate, gender (the percentage of women who contribute economically in the targeted regions for these campaigns for example), and other necessary factors for the success of this initiative.

Egyptian citizens have gone through violent unsettling events during the past seven years, events that have shaken their trust in the state institutions and given them a pessimistic outlook made stronger by the recession of economy and the confusion of state establishments as well as their inability to perform their essential roles, which consequently reflected on citizens’ outlook regarding state economic and financial institutions. Adding all this to citizens’ feelings of anxiety and uncertainty about the future;the significance of studying the psychological and behavioral motivations of Egyptian people, not only as a citizens, but also as a potential customers for all the financial institutions inside Egypt. Therefore, we have to seize the opportunity provided to us by the financial inclusion initiative, along with seeking assistance from the principles and strategies of behavioral economics in order to conduct surveys, sectoral studies, descriptive studies, induction studies, and predictive studies that could be characterized with depth and extensiveness. These studies will make it possible for those managing the Central Bank’s initiative, and similar future initiatives for that matter, to possess the data and information that could procure a solid ground for policy makers in the country and trust in their decision making.

The significance of financial inclusion in the pathway of economic development is huge and central without any doubt. Add to this the complexity of the behavioral and psychological matrix of Egyptian society from an economic and financial perspective and it becomes obvious that Tarek Amer’s adoption of a strategy based on understanding and studying the financial behavior of the Egyptian citizen will be a step of supreme importance. Perhaps recalling the success of digital financial inclusion that countries such as Kenya, Rwanda and India which achieved unprecedented success in spreading banking and financial services in remote rural and desert areas.

Additionally, forming research groups which extensively study economics and behavioral financing in prestigious educational institutions inside and abroad (especially in the UK), and creating a distinguished reward for the best study or digital application that aims to reinforce financial inclusion in Egypt - all this is going to make the financial inclusion initiative an exceptional and a leading initiative in the history of economic institutional work in Egypt and in the whole region.

Before us is a great opportunity that could make Egypt and its most important financial institution, the Central Bank, a success story that the whole world can talk about.