The Role of Deposit Protection in Promoting Financial Inclusion

Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. In Zimbabwe, the Deposit Protection Corporation (DPC) is part to the National Financial Inclusion Forum crafting a new National Financial Inclusion Strategy. DPC is member of the thematic committee on consumer protection and people living with disabilities. The Forum focuses on the legal, institutional and operational infrastructure to advance inclusion.

The main goal of financial inclusion is to improve the range, quality and availability of financial services and products to the unserved, under-served and financially excluded. Financial inclusion can also be defined as the ability of an individual, household, or group to access appropriate financial services or products.

Financial exclusion plays a key part in the creation and amplification of poverty via limitation of the extent to which the poor and/or marginalised communities access financial services. Broadly, a person is considered financially excluded when he/she is not able to access some or all the services offered by mainstream financial institutions in his/her country of residence due to problems associated with access, conditions, prices, marketing or self-exclusion.

Accordingly, regulators and governments in most countries are addressing this problem through new channels and technology, including microfinance institutions, branchless banking and electronic money.

Through these and other developments, an increasing number of small depositors and low-income earners are gaining access to financial services in emerging economies. Financial inclusion is critical to Zimbabwe’s Interim Poverty Reduction Strategy and attainment of Sustainable Development Goals.

Deposit Protection Corporation and Financial Inclusion in Zimbabwe

Protecting the Majority of Depositors

The DPC provides assurance or a guarantee to depositors that they will receive their deposits in part or in full in the event of a bank failure. Operationally, this means that depositors with deposits less than the coverage limit (currently $10 000 for conventional banks and $500 for deposit taking microfinance institutions) will be paid in full. Excess balances over and above the coverage limit are recoverable via the liquidation process. In practice, the coverage limit, by design, takes care of interests of the unsophisticated depositors, who are frequently incapable of knowing the true nature of the condition and performance of a banking institution due to lack of skills and resources as well as opaqueness of the information.

As a matter of principle, the DPC’s protection scheme caters for both individual and well to do corporate clients, as opposed to a scheme for small depositors alone. This helps in reducing incidences of deliberate financial exclusion and thus promotes inclusivity.

Building Confidence in Financial Institutions

The DPC promotes financial inclusion by fostering confidence in financial institutions and potentially leading to greater savings among the poor provided that they are informed about safe places to store their money.

The DPC provides peace of mind and security to depositors in knowing that their deposits will be reimbursed in the event that their contributory institution becomes illiquid or insolvent. The existence of an explicit deposit protection scheme under DPC reduces financial uncertainty, thereby building confidence in the financial system, and enhancing financial intermediation on a nationwide basis, thereby promoting financial inclusion.

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