Importance Of Financial Inclusion

Financial inclusion is a key enabler to reducing poverty and boosting prosperity.

FREMONT, CA: Financial inclusion means that individuals and businesses can access useful and affordable financial products and services that satisfy their needs – transactions, payments, savings, credit and insurance – delivered responsibly and sustainably.

• Financial inclusion has been accepted as an enabler for 7 of the 17 Sustainable Development Goals.

• The G20 committed to progressing financial inclusion worldwide and reiterated its commitment to implement the G20 High-Level Principles for Digital Financial Inclusion.

• The World Bank Group thinks financial inclusion is a key enabler to reducing extreme poverty and boosting shared prosperity.

Entrance to a transaction account is the first pace toward broader financial integration since a transaction account permits people to store money and send and receive payments. In addition, a transaction account serves as a gateway to other financial services, so ensuring that people worldwide can access a transaction account continues to be an area of focus for the World Bank Group (WBG). For example, it was the focus of the World Bank Group’s Universal Financial Access 2020 initiative, which concluded at the end of 2020. Still, many gains were made through this initiative; it is an indicator of the scale of the challenge that there is still more work carcass to be done.

Financial access encourages day-to-day living and helps families and businesses plan for everything from long-term targets to unexpected emergencies. In addition, as account holders, people are more likely to use other financial services, like credit and insurance, to start and expand businesses, induct in education or health, manage risk, and weather financial shocks, which can upgrade the overall quality of their lives.

The continuing COVID-19 crisis has also strengthened the need for increased digital financial inclusion. Digital financial inclusion involves deploying the cost-saving digital means to reach currently financially eliminated and underserved populations with an extent of formal financial services suited to their needs that are dependably delivered at a reasonable price to customers and sustainable for providers.

Great strides have been created towards financial inclusion, and 1.2 billion adults worldwide had access to an account between 2011 and 2017. As of 2017, 69% of adults had an account. In addition, digital financial services — including those including the use of mobile phones — have now been initiated in more than 80 countries, with some reaching a significant scale. Consequently, millions of formerly excluded and underserved poor customers are moving from exclusively cash-based transactions to official financial services through a mobile phone or other digital technology to access these services.

Moving from access to utilization of accounts is the next step for countries where 80% or more of the people have accounts (China, Kenya, India, Thailand). These countries depended on reforms, private sector innovation, and a push to open low-cost accounts comprising mobile and digitally-enabled payments.

Still, close to one-third of adults – 1.7 billion – were still unbanked in 2017, according to the latest Findex data. Almost half of the unbanked people included women from poor households in rural areas or out of the workforce.

Between 2011 and 2017, gender inequality in account ownership remained stuck at 9% points in developing countries, impeding women from being able to efficiently control their financial lives. Countries with high movable money account ownership had less gender disparity. The impact of COVID-19 on this gender gap remains to be seen.

Since 2010, more than 55 countries have committed to financial inclusion, and more than 60 have launched or developed a national strategy. Countries that have accomplished the most progress in financial inclusion have:

• Policies delivered at scale, for instance, universal digital ID.

• Leveraged government payments. (For instance, 35% of adults in low-income countries receiving a government payment unlocked their first financial account for this purpose.)

• Allowed mobile financial services to thrive. (For instance, in Sub-Saharan Africa, mobile money account ownership rose from 12% to 21%.)

• Welcomed new business models, for example, leveraging e-commerce data for financial inclusion.

• Taking a tactical approach by growing a national financial inclusion strategy (NFIS) that brings together diverse stakeholders, comprising financial regulators, telecommunications, competition and education ministries

• Watch for consumer protection and financial capability to promote responsible, sustainable financial services.

When countries take a tactical approach and develop national financial integration strategies which bring together financial controllers, telecommunications, competition and education ministries, our research suggests that when countries institute a national financial inclusion strategy, they increase the pace and influence of reforms.